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How good is $20K seed capital?

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Nov 30th, 2013
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  1. I've started doing rounds to raise seed capital from friends/family - for a SaaS product idea. The idea expects investment of $20K and extrapolates that to multi-million dollar company in 3-5 years.
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  3. Few people have "questioned" if that is a good seed amount, and below is the conversation from one such case.
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  5. Does anybody see anything wrong with my approach or assumptions? (as detailed below)
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  7. Please bear with me if I am writing something totally stupid - I've never raised seed capital earlier.
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  9. The conversation between ME and JOE goes like this. JOE is not an angel investor nor a VC. JOE is a friend who has the seed amount I require
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  14. ME: I've a product idea that can generate a revenue of $500K per year after 1.5 years. And that it can reach $1m within 3 years. And can scale to a billions in 5-7 years if we strategically take it further.
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  16. (Further, I say)
  17. We create a company and you(read: the other party JOE) get 40% of the equity. But you must pay the complete seed amount to the company initially. And the company pays me a salary XYZ from the seed amount for 1.5 years. i.e it goes to company's expenses. (The salary amount is needed to meet my monthly expenses)
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  19. JOE: Okay, I hear you. What is the amount you are looking for?
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  21. ME: $30K is good, $40K is excellent, $20K is okay - but not below $20K.
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  23. ME: You should also understand that if the idea fails, you lose the amount equal to the amount in company's expenses.
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  25. JOE: Really - 20K? Are you sure about your costs and your projections?
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  27. ME: I'm sure about the costs. I have never started a company before but the estimates after 3 years are pretty conservative from my perspective.
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  29. ME: Let me explain the idea and the plan
  30. ...I explain him the idea and he is pretty convinced that it is a workable one. However, he still looks at the business model as "too good to be true"
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  34. Some of the points that I mentioned to JOE about the plan
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  36. 1. I live and work from India. My expenses are lesser than western counterparts (lets say 1/2). i.e a small capital goes a long way.
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  38. 2. I'll be working solo for long time in first 1.5 years- because I can do work of multiple average-to-good programmers/QA alone (no exaggeration). NOTE: Good != Great
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  40. 3. There are certain things I cannot do myself - but I know freelancers who will do it for a fee.
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  42. 4. I am expecting the product to market itself, and therefore does not requires heavy sales/marketing - atleast not in the early stages (1.5 yrs)
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  44. 5. The development plan is something like this:
  45. --- Core framework (value enabler)- to be finished in max 3 months
  46. --- Value creation stuff, beta releases - between 4-6 months
  47. --- GA after total of 9 months (with higher focus on customer acquisition and we probably approach VCs for further funding after this milestone)
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