I have come across several situations wherein the VC invests based on funds needed to get certain things done in a startup.This seems ok, but most will want nothing less than 20% of the company.
Let me give an example. Say you are trying to raise 5million. As per the VCs assessment you can cut it down to 1 million if you just invest in the most important things for now. Assume the suggestion makes business sense and you are ok with it.
Now you would expect that the VC takes only one fifth of his original share since his investment is one fifth.But no, the VC wants the same or only slightly less piece of the company.
What surprises me is that nobody raises this question -
As a founder, I am parting with x% of equity, the amount raised for the same should only be a function of valuation of the company and not what I need. You may choose to invest a lower amount based on your assessment but the share would be proportionate to the investment.
Note: This is in context of the Indian Startup eco system. The observations are from information available in the public domain such as blogs and videos covering startup events, pitches etc. The focus is on startups in their early stages.