A $5k check will give a super-early-stage "startup" (two or three college kids) with no salaries and about $1000/month burn rate ("living expenses" in the right market outside of SV) about four months of runway. You'd have to approach at a sufficiently early stage (like so: http://velocity.uwaterloo.ca/funding/velocity-fund/).
What share of the company would you expect for that kind of investment? If the amount would be trivial then why would you bother (little reward for so much risk), but if it's non-trivial then why would they accept your money, given how small the amount is compared to the value of their sweat equity?
If they really believe in what they're doing, they won't want to give chunks of it away so cheaply. Conversely, if they're willing to sell on those terms, wouldn't you be concerned that they aren't serious?
>If they really believe in what they're doing, they won't want to give chunks of it away so cheaply. Conversely, if they're willing to sell on those terms, wouldn't you be concerned that they aren't serious?
If they're college kids or new college hires, you'd probably banking on them not knowing how valuable whatever they're making is.
> We have a new standard deal at YC—we’ll invest $120k for 7%.
> This replaces our previous standard deal of on average $17k for 7%, plus a SAFE that converted at the terms of the next money raised for another $80k.
Originally, before they invented the SAFE, there was no SAFE in the deal
In my experience founders taking a 5-10k check often do it as a favor to an advisor they like and who can't afford to invest more. Maybe the advisor helped them out in the past, or their personal brand or connection are relevant to the startup.
Considering that "cool kid" founders do engineering themselves and that they typically don't pay salary to themselves, 10k could cover their initial hosting or say hardware prototyping costs.
"Cool kids" should not be taking 10k checks except as a favor, every investor they take on and have to maintain a relationship with is a potential distraction to the business. I'm lucky to have more than enough capital to run my business until we're done prototyping and ready to start growing.
There are usually several of these $10K ones, especially from angels the founders like and want to have a longer term relationships with. Also, most initial development is either outsourced or done by the founders.
It's either part of the entire round, or it's gonna go to a founder, one of whom is an engineer if it's a tech biz, and it'll feed them for 2-3 months while they get the prototype together.
