Ask HN: So how does this whole investment thing work?

To give this question some context, I'm not someone lacking total knowledge on this subject. I'm familiar with how things work in regards to acquiring funding and what to do with it afterwards. I'm missing knowledge for the in-between part. Maybe this can help me and others who are questioning this as well.

To better help me explain this I'll put it in a hypothetical situation.

Say I have a company that's wanting to raise a seed round. We crunch the numbers and find that $2 million is a suitable amount for what we want to accomplish. Now, because we want to have a good chance at capturing these funds we'll be splitting the $2 million that we want into eight individual investments of $250,000 from individual investors. So just to check, that's 8 x 250,000 = 2,000,000. Ok, cool.

So first question, is this a normal way to approach what we're doing?

Second part is going to deal with how the equity is distributed. So, if there's going to be eight investors in this seed round, they're going to want a chunk of the company. No problem, but this is where I (and others) can get confused. Say we figure that a good percentage for this amount of $200,000 is at 7%. So if we give everyone equal equity for the seed round, 8 x 7% equates to 56%, which is over half of the company for just the seed round.

Is there where dilution comes in? How do we get equity back to raise money down the road? Are we supposed to be offering really low equity? If we are, that can't look too attractive to investors, right?

Ultimately, is there something I' missing for how this works?