I was reading some of the stuff by Y Combinator (a VC firm that has been spot on in picking the right early stage startups to fund). Fabulous stuff. But then I came across the article on The Equity Equation. I suggest you read the article. Here’s a part of it:

Question:
An investor wants to give you money for a certain percentage of your startup. Should you take it?

Answer:
1/(1 – n)
Whenever you’re trading stock in your company for anything, whether it’s money or an employee or a deal with another company, the test for whether to do it is the same. You should give up n% of your company if what you trade it for improves your average outcome enough that the (100 – n)% you have left is worth more than the whole company was before.

I disagree with this equation for early stage companies. You are selling out for too less. While it may sound rational and common-sensical, you are discounting your dreams in the process. The article tries to justify selling 2-10% of your company for under USD 20,000. Unfair.