Obviously, the details matter and there are few here so I guess I can only make a generalized statement...

Think really hard about the "standards" you have set and ask yourself if they are necessary. Depending on what phase of development and release your product is at, maybe you can get by with a whole lot more ducktape than you think. Is it maybe worth to accumulate some technical debt in order to release faster? Do you need that fancy micro services architecture or could you get by with one monolithic service in the beginning?

Does all your development have to be done by top notch developers? There are features and aspects of your product which are a competitive advantage and there are just as many things which are just plumbing. Can less experienced, cheaper or outsourced resources work on the plumbing?

All these choices and standards you have set in your mind about what your product must be have an associated cost to them. As an engineer you want to build the best possible solution using the most "correct" approach your engineering ego strives for. I doubt any of that matters to your end user who can't see any of it...as long as it works.

So, if you are in the seed funding stage, maybe you should consider every single nasty ugly horrific shortcut to release something that works just to stay alive.

This is why investors with domain experience are often advantageous. I'll add that underfunding makes it more likely you'll be giving up additional equity in a future round, and spend more energy fund raising. If the terms are troublesome, talking to another investor may be worth the trouble. A larger round could be split between the original and new investors.

Good luck.

Does he not know the average salaries of developers in your area? Any recruiter will corroborate that.

Or does he think you should hire developers from lower cost of living areas?

Or is he surprised that labor is a high percentage of total expenses? In that case, you need only explain why the other expenses are so cheap (hosting, etc. isn't expensive with a small customer base).

canteburry may also have a point, a lot of people don't hire at level. Or they hire hard core computer scientists when application developers would be better.

Show him salaries for similar jobs, and say, "this is what the market is for people who are talented at this, and it's probably only going to go up. You get what you pay for, just like you would if you hired an oil field engineer, or a civil engineer for building a bridge."

Qualify your initial estimates as having been initial, and ask if he wants more accurate revisions of them, based on current market prices and a need forflexibility if there are issues or problems that lead to overruns. Then overestimate, and use savvy business skills to "save" the difference, if possible.