Seed investor wants 15% plus 15% esop for $2m. Thoughts?
Does this sound ok as a seed deal?
They also want single trigger acceleration.
I’m assuming there’s really no scope to negotiate any of this with the investor.
10-15% carve out for ESOP is pretty standard from what I’ve seen. 15% for $2MM also is giving you a $13.3MM (repeating of course) valuation which no one can really speak to without further knowledge of your metrics.
The 15% ESOP is likely negotiable – have they included a side letter so they're undiluted by this pool? If so, it's in their interest to make it as big as possible now, so that they don't get diluted by you growing it later.
(Also, everything is negotiable if you get another offer – I would recommend focusing on that.)
ESOP is often at least loosely correlated with round size. You can always increase it, but there's some dilution benefits to pushing for a smaller obligation. I would probably go back (given the target ownership) asking for higher cap and 10% esop. Everything is negotiable.
All of these are standard terms.
Establishing a (standard sized) ESOP is good for the company long term.
If you would like better/different terms, you'll need at least one other firm to offer you a term sheet as leverage.
What does 15% esop mean that you carve out an esop, who takes the esop, you and your team?
$2m for seed seems like a good deal for any amount of equity. At least for software.