TechCrunch had a great guest post by Mark Suster, a former entrepreneur-turned-VC entitled, "How Many Investors Are Too Many?" today. I won't list the whole article here, but the basic advice is to get a split between 2 with the lead VC taking 20-25% and a smaller one taking 7.5-15% or two who take 15-17%. He provides a lot of great advice and this is one of the more thought-provoking pieces TechCrunch has done in a while. Suster lists a number of rules to follow if you're getting onto the Angel/VC-funding path.
Speaking as employee number one at a start-up, we've so far been very fortunate not to have to take outside funding. As we expand and grow our baby, we'll have to see how things change. But we make no bones about it that we believe in the model of taking as little funding as possible. It's quite simple- the more investors you allow to fund your company, the more you have to pay them. And be clear- they're not going to want a small return; they're going to want something like a 10X return. The more they put in, the more you're going to need to have at the end and getting a blockbuster exit is extremely difficult. We all think of the outliers- the Facebooks, the Twitters, etc. but most companies never make it that far. The blockbuster exits make news but they're the exception, not the rule.
It's entirely possible to build a very profitable business without some pre-determined exit or taking funding. I love companies like 37 Signals, who make popular web apps like Backpack and Basecamp. These guys are just making a product, albeit a premium one, and not planning on some specific exit. They're continuing to improve their products and they did it by bootstrapping. I feel bootstrapping is the best way to go if you can do it. It's clearly very difficult and most entrepreneurs can't do it, but you should try to find a way. The more you do it yourself, the more you keep.