To me, the article shows that "startup" means something different outside the Silicon Valley bubble.
Taking 40% for $400k is probably counter productive for an investor shooting for a $1 billion plus exit. Consuming so much equity [the primary asset of an early stage company] so early for so little capital means that equity is not available for bigger rounds later.
On the other hand, for normal capital, if the business grows to $500k a year in profit over the next five years, it provides a handsome internal rate of return for a local group of investors at the Chamber of Commerce scale.
The difference I sense, is that the "Austin" investors are hardening against future rounds of investment rather than encouraging it. With a 40% stake, such investors are likely to be the biggest single shareholder and hence have a high degree of control over future deal flow.
Taking 40% for $400k is probably counter productive for an investor shooting for a $1 billion plus exit. Consuming so much equity [the primary asset of an early stage company] so early for so little capital means that equity is not available for bigger rounds later.
On the other hand, for normal capital, if the business grows to $500k a year in profit over the next five years, it provides a handsome internal rate of return for a local group of investors at the Chamber of Commerce scale.
The difference I sense, is that the "Austin" investors are hardening against future rounds of investment rather than encouraging it. With a 40% stake, such investors are likely to be the biggest single shareholder and hence have a high degree of control over future deal flow.