A: Hi again Boomstyk. As I mentioned in my post on Investment Thesis Basics, ‘Fair’ pricing for early-stage investments is a dissertation-worthy topic which I’m neither suited nor qualified to tackle. There are so many variables in play when pricing an early round, from idea and capital needs to quality and experience of the founding team to the personalities and experience of the investors, that it’s literally impossible to generalize.
My advice to founders is to take no outside money at all if you can swing it. If you don’t think you can pull that off, then take as little as you need to buy yourself the time required to validate the idea and demonstrate its potential (ideally to the point that you’re have paying customers and are generating meaningful revenues). In negotiating terms, you want to give up as little as possible of the company when you’re relatively weak, and use that money to develop the strongest BATNA (best alternative to a negotiated agreement) that you can. If prospective investors get the sense that you don’t really need their money – either because you’re generating enough cash to sustain the business or lots of other investors are lined up to give you the capital you need at a better price – you’ll have a much stronger hand when negotiating terms and price in later rounds.