How much equity do you need to give away to get VC money for an unproven business idea? Is there a ballpark figure? I heard like $100k for 20% or something but I guess that's more like angel investing? What's the minimum amount of work you need to do before getting money with no track record as a founder?
Until a startup is obviously a billion-dollar entity (reasonably on track towards $100M+ ARR), it varies greatly based upon;
- Growth metrics (MoM, YoY)
- Following, absolute metrics
- How these metrics compare to others in your vertical
- Business thesis
- Total market size (needs to be gigantic)
- Strength of vision, ability to execute
- Ability to convince others of said vision
- Ability to attract, recruit and retain talent (investors, employees)
- Many more magical and unspoken factors that influence an investor's perception of you, individually
There are many, many different ways to optimize any specific signal here but realistically you're going to have to throw half of 'em away. With the exception being you can't really budge on market size or you're not VC-fundable. Some of the factors can be leveraged off of one another to improve the other. (Strength of vision -> ability to recruit, etc.)
$100k for 20% is a nightmarish Shark Tank deal for a lifestyle business that's generating sustainable revenue. As another poster mentioned, you're looking at $5k - $50k checks in the Angel stage. If you're on to something, with a product in market a reasonable hypothesis as to how it becomes a $B company, you're looking at starting to raise on SAFEs at a ~$4M Cap. At least, AFAIK, that's pretty standard absolute lower bound out of an accelerator or incubator (which will give you some credibility -- I might optimize towards that path first). Meaning you're assuming pre-money capitalization at a priced round of $4M or greater. You can go lower if investors really want to deal chase or it'll get the right person in. So, if you raise $500k on SAFEs and pull in $1M in total investment for a seed round at a $4M pre-money valuation (+$500k from a MicroVC or small VC check), you get diluted 20% in exchange for $1M (post-money of $5M).
Edit: should mention, YC's standard deal is $120k for 7% [1]. Other accelerators are more aggressive on the capital they provide / equity they ask for in exchange. I've skipped a step here and assumed you've been through an accelerator to raise at a $4M+ Cap, though it's not absolutely necessary to have gone through one -- but the accelerator deals are more in line with what you're asking about.
Pre-seed/seed VC is primarily about team pedigree and familiarity. If you want to do the minimum work in order to fundraise for a new startup, you and/or your co-founders need to be somewhat successful already (career, past ventures) or be personally close to people with money. This, in addition to having a good idea and plausible large market story. But the main thing to know is team comes first. And then you could maybe do $1M for 20%.
I'm not sure how a 100K-for-20% situation could happen. Maybe a friend or family member acting as an angel. Any VC that trusts the team would invest more and/or tolerate higher valuations.
It's not some sort of goal-oriented nefarious plot to keep poor people out of the rich people's club by alienating them through language choice. It's a realist description of how early stage startups actually work empirically, irrespective of whether we approve of the nature of this socioeconomic phenomenon.
When you have no proof at all that your concept can actually become a profitable business, no commercial investors will touch it. It's far too risky compared to their many other options. The only people who get investment in such an extremely high risk scenario are those who happen to have rich friends and family. These investors will take a punt on them just because they like them personally and they can afford to lose the money, which is overwhelmingly likely.
It's not the name that gatekeeps, it's the necessity of having the network in order to access capital. The name is honest. These days, at least you can try kickstarter.
