Founder Dilution - How Much Is "Normal?" • Hacker News Board

Re: Founder Dilution - How Much Is "Normal?"

#31

Post by kubrick » Mon, Feb 23, 2009, 1:13 AM UTC

astine wrote: post #29

kubrick wrote: post #27

Earlier quoted context omitted.

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.

It's not much when you a) have to split it 2 or 3 ways, and b) have to watch the VCs take home several times as much, when you did all the work.

My point is that there is a value judgement here. VCs are being overvalued, and founders are being undervalued. This serves to demoralize and demotivate the founders, ultimately hurting the value of the company. It doesn't need to be that way.

Re: Founder Dilution - How Much Is "Normal?"

#32

Post by sabat » Mon, Feb 23, 2009, 1:19 AM UTC

jmackinn wrote: post #9

kubrick wrote: post #7

Two 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 are asking for (in most cases) millions of dollars to develop a likely unproven idea.

They're asking for money that can potentially make the VCs very, very rich. Or at least make a good return on investment. The VCs are choosing to make that investment. They're not just being asked; they're answering in the affirmative, at which point they ought to be working in all parties' best interest.

VC's are not in the business of coddling founders.

I think you're making this guy's point. That is the problem. They should be in that business; they'd be helping themselves.

Judging by the number of up-votes, I wonder how many VCs lurk here. They can't be PG fans, considering what PG has had to say about VCs:

http://www.paulgraham.com/venturecapital.html

Re: Founder Dilution - How Much Is "Normal?"

#33

Post by anamax » Mon, Feb 23, 2009, 1:59 AM UTC

anamax wrote: post #25

One 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 ....

> Even if it's 1-2% at exit ....

It's not - it's <0.5% at exit.

Re: Founder Dilution - How Much Is "Normal?"

#34

Post by herval » Mon, Feb 23, 2009, 8:01 PM UTC

albertsun wrote: post #15

herval wrote: post #14

Earlier quoted context omitted.

I have a couple of enterpreneur friends that say that you should always aim for an even number of founders (3 in the best scenario, never 1, hardly ever 5). Having an even number helps when 'voting' things, so the tendency is to keep things moving... having been an enterpreneur myself (with 3 other people), I must agree with them

An odd number you mean?

yes... sorry!