Structurally that is almost guaranteed to be a bad deal. I doubt you'd ever find a deal of this form in the history of a startup that went on to be successful. If an investor buys as much as half the company (it does happen in some series A rounds), the valuation should be higher.

Investors might pay $200k for half a restaurant or some other business like that, but not a startup.

Yes I think the professor realised this -- he was one of the founders of lavalife IIRC.

I have seen the show and my observation was: The dragons are really mostly into funding sauce-makers, innovative clothing accessories, etc. and they apply the same principles to startups -- doesn't work well.

I've always felt that they behave like VCs i.e. want a lot of control (hence the 50%) but only want to invest money like an angel. The weird thing is that given the amount of money they invest and the number of deals they do, they possibly can't have the time to run any of those early stage companies.

I've never seen a startup accept funding from them, its either an inventor who gets access to a particular store or a mom & pop shop.

The first 2 parts of the show

http://www.youtube.com/watch?v=Z9EkablfWVk - Part 1

http://www.youtube.com/watch?v=lj8MNEgiDTU - Part 2

They tried to counter at 30% but decided to take the $200k / 50%

You have no idea? Hmm.... you need to think it through. Just think about how much exactly $200K would last them and how much more money they'd need to raise to become profitable. Not to mention the control problems.

As funny as that whole thing was, the prof was right to break that deal. This company wouldn't have gone anywhere anyway with that kind of a structure.

That's right. I have no idea. You know why I have no idea? Because nobody is offering me $200k, that's why I have no idea. If they were, I'd immediately learn enough to make a relatively informed decision. But until then, I'd rather learn things that would help me build a product, not manage a company. So therefore, I have no idea. Gosh, what a horrible thing to admit.

Now that makes a difference. I didn't like at all the way the professor behaved but I liked the fact the guys from jobloft stuck by their gut feeling.