Warning To All Entrepreneurs About Bad Investor Behavior

Perhaps they should do YC W2012? $170k on great terms with huge value add, and then introduction to top-tier investors, seems like a slam dunk.

and? they have 50 paying customers. I'm within 10% of two thousand customers, and my business, realistically, is only worth about $300K in total. (Now, I'm not going to sell it for less than about 3x that, but $300K would be it's fair market value based on the industry standard revenue multiplier.)

I mean, yeah, if you aren't poor, $300K is not enough to give up your dream if you have big plans for the company; I'm going to keep trying for better, and I encourage others to do the same. But you need to realize that for most companies without traction? $300K is a lot more than it's worth to someone not emotionally invested in the thing.

In reality, it's often quite difficult to get more than a years worth of revenue for a company. There is no reason to feel insulted at that kind of offer, even if you do need to turn it down.

That's the exact thing I wanted to ask. 2% for 100k is a 5M valuation, that's pretty good for most early-stage startups. Why would this vest over time? It sounds like a clear-cut "quid pro quo" to me...

I hijacked your question a bit, so I'll reiterate adw's answer below: He means 1-2% extra for finding the investors.

I wouldn't fix too much on particular numbers. If the increased probability of success (you take the investment for a reason, right?) makes up for the lesser share then the offer is good. I believe this piece of advice comes from Paul Graham. Edit: Right, here it is: http://paulgraham.com/equity.html

First Time poster; Chiming in to also say thanks for posting this article. I'm just starting to delve into this world and the memory of having read this article should prove to be critical were I to run into a situation like this. At the least I'll know to call a mentor to ask about the kosherness of such terms. Again, Thanks!

I've been sitting on this complaint for a while now. It is really, really starting to annoy me that comments on a webpage rely on JavaScript hosted by some other website.

I use NoScript for a reason. I temporarily whitelist pages which I (after a quick glance), deem trustworthy. I have been known to whitelist Disqus on occasion, but I'd rather not. In this particular case there were a whole slew of external domains that were blacklisted, there's just no way I am going to enable them one by one to see which ones are needed for a few user comments to load.

I know, it's my loss. But I suspect that website owners would have an interest in showing off all the good comments their users post. I'm probably a minority, but using NoScript instead of all the adblockers out there makes me feel like I'm a "friendly user" to website owners. I will see their ad's as long as they don't depend on external JavaScript. There might be a tiny niche market here (ad-network with reliable stats hosted without external dependencies), but I wonder if it'd be worth going after.

On a tangent: I'm just waiting for the day when GitHub will hit me with something nasty, since I have them fully whitelisted.

Maybe I should have written a blog entry instead.

I don't think that was the point of the article. I read it rather as pointing out that posing as a founder when actually just buying equity is not ok. The key difference is personal engagement ('I asked two questions. The first was “is he going to be full time with the company” and the other was “do you want him as a third full time partner.” The answer was no and no.'.)

No. If an incubator wanted equity but wasn't offering capital, they wouldn't get many applications.