And remember, there are usually 2-4 founders.
Even further dilution. How important is a 5 million cashout when you only have 7% left of the company you slaved on for three years?
I never plan on taking VC money if it is at all possible to avoid.
Founder Dilution - How Much Is "Normal?"
21–30 of 34 posts
Re: Founder Dilution - How Much Is "Normal?"
#22This is like an equation where the earlier you go outside for capital the bigger the chance that you will end up with a very small slice of your company and a possible lack of control. If you're halfway smart - and you'd better be if you plan to play the game well - then you should stretch your own means as far as you can. If you're dirt broke and you want to start a new company it better be something that is profita…
Agreed. I wrote some of my thoughts down recently here: http://david.weebly.com/1/post/2009/02/does-capital-efficien...
Essentially, while running a grossly underfunded company is definitely bad, that's not to be confused with a "raise insane amounts of money and spend it indiscriminately" attitude.
Doing the most with the least amount of money is still the best way to maintain maximum ownership, but it should definitely be balanced against the risks of not being properly capitalized, where "properly" is certainly open to interpretation.
Re: Founder Dilution - How Much Is "Normal?"
#23This is like an equation where the earlier you go outside for capital the bigger the chance that you will end up with a very small slice of your company and a possible lack of control. If you're halfway smart - and you'd better be if you plan to play the game well - then you should stretch your own means as far as you can. If you're dirt broke and you want to start a new company it better be something that is profita…
Agreed. I wrote some of my thoughts down recently here: http://david.weebly.com/1/post/2009/02/does-capital-efficien... Essentially, while running a grossly underfunded company is definitely bad, that's not to be confused with a "raise insane amounts of money and spend it indiscriminately" attitude. Doing the most with the least amount of money is still the best way to maintain maximum ownership, but it should defini…
I even think that some initial funding constraints will sharpen your wits in ways that nothing else can.
Re: Founder Dilution - How Much Is "Normal?"
#24I typed-up a long comment, but just decided to submit it instead to YC as a blog post:
Re: Founder Dilution - How Much Is "Normal?"
#25One interesting answer was to "Let's say the 2 co-founders (1 engineer 1 business-type) have just gotten $100k angel and are hiring an engineer. What sort of equity range for that engineer would you expect."
The answer was "1-2%". It's unclear if that's 1-2% at exit, after the first VC round, after the angel round, before the angel round, or what.
Even if it's 1-2% at exit ....
Re: Founder Dilution - How Much Is "Normal?"
#26This is like an equation where the earlier you go outside for capital the bigger the chance that you will end up with a very small slice of your company and a possible lack of control. If you're halfway smart - and you'd better be if you plan to play the game well - then you should stretch your own means as far as you can. If you're dirt broke and you want to start a new company it better be something that is profita…
Agreed. I wrote some of my thoughts down recently here: http://david.weebly.com/1/post/2009/02/does-capital-efficien... Essentially, while running a grossly underfunded company is definitely bad, that's not to be confused with a "raise insane amounts of money and spend it indiscriminately" attitude. Doing the most with the least amount of money is still the best way to maintain maximum ownership, but it should defini…
I read your post, and a similarity struck me between your situation and the one I was in with a competitor funded to the tune of 30M US by two very large companies. We were approached with the intent to acquire, but the management team there was - to put it mildly - a little strange, so we declined. After 3 years they had burned through the whole wad and the plug was pulled.
It was the weirdest experience, to out-compete a company that has such enormous backing with a team of very few but very dedicated people in two small offices (one in Toronto, another near Amsterdam).
Re: Founder Dilution - How Much Is "Normal?"
#27Two thoughts come to mind: 1) the VC system needs to be reformed. If founders are being screwed like this (and I think it's reasonable to say this is a screw), they're going to find other ways to raise capital. (And they are!) VCs should be in the business of cultivating founders, of encouraging and then rewarding them. 2) This is all the more reason to sell your company; it's more realistic (post-dot-com-bust) anywa…
I'm not sure how founders are being screwed here. They are asking for (in most cases) millions of dollars to develop a likely unproven idea. Also, VC's are not in the business of coddling founders. They are making an investment that they hope will return a profit and that is what is expected by their investors. Places like YC try to cultivate and encourage the founders, but they only give you ~$10000. If you want a c…
They're being screwed: after developing a workable idea and putting years of work into it, they come away with practically nothing. If that's "the game" then no wonder founders are turning away from VCs. That's why I'm suggesting VCs change. Stop short-changing the founders. VCs with no founders are not VCs.
Re: Founder Dilution - How Much Is "Normal?"
#28Two thoughts come to mind: 1) the VC system needs to be reformed. If founders are being screwed like this (and I think it's reasonable to say this is a screw), they're going to find other ways to raise capital. (And they are!) VCs should be in the business of cultivating founders, of encouraging and then rewarding them. 2) This is all the more reason to sell your company; it's more realistic (post-dot-com-bust) anywa…
If you just glance at the numbers it looks like they're being screwed. But at each round (while they still had control) the founders got to decide if taking funding would be better for the company and themselves. There's no rule that says founders get to keep large percentages of their companies.
My point is that it doesn't have to be that way. The VCs are behaving in a predatory way, and they don't need to. I've worked at such a startup, and taking funding isn't just a nice option; usually it's a matter of survival. Of course a VC firm is going to take advantage of that fact. But if they showed a little more character by not sucking up such giant gobs of the companies, the founders would be encouraged to stick around and maximize the company's value. Instead, they're just encouraged to get what they can and then get out.
Re: Founder Dilution - How Much Is "Normal?"
#29Earlier quoted context omitted.
I'm not sure how founders are being screwed here. They are asking for (in most cases) millions of dollars to develop a likely unproven idea. Also, VC's are not in the business of coddling founders. They are making an investment that they hope will return a profit and that is what is expected by their investors. Places like YC try to cultivate and encourage the founders, but they only give you ~$10000. If you want a c…
They're being screwed: after developing a workable idea and putting years of work into it, they come away with practically nothing. If that's "the game" then no wonder founders are turning away from VCs. That's why I'm suggesting VCs change. Stop short-changing the founders. VCs with no founders are not VCs.
10% of a million dollar company isn't practically nothing.
Re: Founder Dilution - How Much Is "Normal?"
#3020-25% for the management team? Perhaps MBA's aren't as "useless" as some folks preach they are. Just being qualified to be one part of this team puts you on an equal footing with founders in a startup after 4 rounds. Damn... Who are these people? I am assuming that CEO/CTO are the founders, then you recruit COO, a VP of marketing, perhaps VP of business development... who else? Do these 3 new folks grab 20% of the c…
He probably means management team + other employees. Isn't the total employee option pool about 20%?
Yes - in the comments he states the 20-25% includes all employees.