Congratulations, you are now in the great game of business!

If you are offering him 10% for $70,000, you are putting a $700,000 value on your company. Does that sound reasonable to you?

Its good that you are thinking of offering an 'vc' level return (20X return is on the lower end of what a good venture capital firm might look for, although not the bottom of the range), but keep in mind that VC's also vet their potential investments very carefully (imagine if you were competing with 50-200 other founders also pitching something similar to your potential investor: could you see yourself being the 2 or 3 that are chosen for investment?), AND THEN after that competitive selection process, most of the companies will fail.

If your investor is savvy, he'll know this and appreciate your 20X return offer. However, offering him more - i.e., 1% of the company AFTER he has already gotten 20X return - is a lot, and you are really starting off the negotiations with offering him too much.

Remember, asking for investment is the same thing as selling your company. You are asking your potential investor to 'buy' your company at $700,000, except you don't want him to buy the whole thing, only 10%. You are selling, and your offer is only the start of a negotiation process - keep that in mind.

A promissory note is great - it changes the investment from a traditional investment into a mere loan. This is also called non-dilutive financing: great if what you are building is going to need more investors in the future and/or will be successful. If you've already poured 2 years of your life into this, then that is a good indication that you are ahead of many other wannabe startup founders: a very, very high percentage cannot go 2 years on a single startup.

I suggest offering him a promissory note with a reasonable interest rate - say prime + 3 or 4 percent - and give him an option to convert to shares at a mutually agreed price within 2 years. Ideally you set up a 'mercy' period of, say 6 months, where you pay nothing back. Then you set up small, but increasing monthly payments so that you are paying him back, and set the payback period over maybe 2 or 3 years depending on how long you need to become cash-flow positive in your business. Then, during the time of payback with your monthly payments, give him an option to convert the outstanding balance of his loan to you into equity, and work out a way to calculate the valuation so that he/she gets a discount from what would be then-market value for the shares. Maybe offering a 20% discount would be a good starting point?

Good luck!