Learning about Venture Capital
pw0ncakes: I don't have any direct experience, but my understanding is that:VCs will give an amount that seems appropriate to getting to "the next stage", however that is defined. Their take is determined by the pre-money valuation and the amount given. A web startup might be able to sell 20% of the company for $1 million, implying a $4m pre-money valuation. Biotech startups typically give up 90-95% in order to get $20-40m invested.VCs will want to know where their money is spent, and generally want the CEO to pay himself $125-175k. Paying the CEO a million, if not vetoed, would quickly ruin the relationship with the VCs, which you do not want to break.Also, and this cannot be stressed enough: watch out for downright evil terms such as participating preferred and multiple liquidation preferences. VCs usually ask for a 1x liquidation preference, meaning that they take out their investment at par before anyone else gets paid. (This only makes sense, because otherwise you could sell on a down round, liquidating but screwing the VC). However, evil VCs will ask for a multiple. So, on $4m invested, the liquidation preference might be $8 million, meaning that if you sell at $7.5 million, you get nothing. Another evil term is participating preferred, which means that they get an equity-based share after taking the liquidation preference. So if you take $2 million for 40% of your company at 2x with participating preferred, then sell at $8 million, the VC gets $4 million plus 40% of the remainder ($5.6 million) instead of the $3.2 they deserve-- and you, the founders, just got ripped off. These kinds of terms exist because, although there are a lot of great VCs, there are also a lot of silver-spoon entitled shits who actually believe they deserve that sort of thing for the gift of their existence.