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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.
  3. Few people have "questioned" if that is a good seed amount, and below is the conversation from one such case.
  5. Does anybody see anything wrong with my approach or assumptions? (as detailed below)
  7. Please bear with me if I am writing something totally stupid - I've never raised seed capital earlier.
  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
  11. ---------------------
  12. ---------------------
  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.
  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)
  19. JOE: Okay, I hear you. What is the amount you are looking for?
  21. ME: $30K is good, $40K is excellent, $20K is okay - but not below $20K.
  23. ME: You should also understand that if the idea fails, you lose the amount equal to the amount in company's expenses.
  25. JOE: Really - 20K? Are you sure about your costs and your projections?
  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.
  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"
  32. -----------------------
  34. Some of the points that I mentioned to JOE about the plan
  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.
  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
  40. 3. There are certain things I cannot do myself - but I know freelancers who will do it for a fee.
  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)
  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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