View from Seed

JANUARY 13, 2021

And yes, a seed fund may have a tougher time holding on to their ownership down the road, and thus get diluted down. We’ve had multiple companies in our early funds that hit bumps and had to raise flat rounds, which hurts from a dilution standpoint but doesn’t wipe out our position. So yes, seed funds will own less. But guess what?

Dilution 399

Dilution Later Stage Portfolio Technical Review 399

Gust

APRIL 9, 2014

Equity dilution works when the same pie is divided among more people. Because the total percentage of equity will always equal exactly 100%, every time anyone gets another piece, by definition it “dilutes” all of the previous equity holders. Uncategorized company equity dilution founder investors startup'

Dilution 150

Dilution Equity Vesting Stock Options 150

Startup Professionals Musings

SEPTEMBER 10, 2018

Of course, all co-founders need to remember that allocated percentages will be diluted as angel and VC investors are brought in. Keep your wits about you to make sure that dilution is done equitably and evenly. The CFO may have a major financial background, but might be a minority owner.

Equity 238

Equity Cofounder Technical Cofounder Intellectual Property 238

Startup Professionals Musings

JUNE 28, 2021

Thus every serious investor reserves a certain amount of his investment capital for follow-on rounds, which allows them to stay to course to success, even with dilution. They will need more money. If you subscribe to truths one to five, startup investing can be lucrative.

Angel Investor 361

Angel Investor Accredited Investor IRR Angel Groups 361

Gust

OCTOBER 18, 2014

What this investor is seeking is called “permanent, full-ratchet, anti-dilution protection”, and that is neither (a) in line with the market, nor (b) practical. That’s why anti-dilution provisions are typically only applicable to the next financing. So, no , you simply can’t give him what he wants.

Dilution 137

Dilution Ratchet Equity Finance 137

Both Sides of the Table

SEPTEMBER 15, 2022

But here’s the magic few people ever talk about … We’ve created more than $1.5 billion in value to Upfront from just 6 deals that WERE NOT immediately up and to the right.

Technical Review 416

Technical Review Pre-Money Valuation San Francisco Valuation 416

Gust

APRIL 11, 2014

Let’s get right down to business: Dilution of founders’ and other early shareholders’ equity in startups is frequently a subject of intense interest and debate. That’s the concept of what some call mathematical dilution. That is not economic dilution, but rather its opposite ( accretion ).

Dilution 162

Dilution Equity Pre-Money Valuation Prospectus 162

Startup Professionals Musings

AUGUST 4, 2014

Of course, all co-founders need to remember that allocated percentages will be diluted as angel and venture capital investors are brought in. Keep your wits about you to make sure that dilution is done equitably and evenly. The CFO may have a major financial background, but might be a minority owner.

Cofounder 261

Cofounder Stock Founder Technical Cofounder 261

ithacaVC

OCTOBER 10, 2017

Here is the big problem with investors – they dilute the founders’ ownership in the company. Let’s cover some basics: It is impossible to issue stock to investors without existing shareholders (founders, employees and prior investors) being diluted. Is this actually a big problem?

Dilution 53

Dilution Stock Options Stock Valuation 53

Startup Professionals Musings

APRIL 27, 2019

It takes focus to resist adding a long list of features that seem to make the opportunity larger, but dilute to focus of both you and potential customers. The first chasm is getting the customer requirements right, product or service, to satisfy a real need that a large number of customers will pay real money to satisfy.

Technical Review 255

Technical Review Dilution Early Stage Product Development 255

Hunter Walker

SEPTEMBER 10, 2024

This makes sense at face value: a) fundraising ranges from being a distraction to a colonoscopy + root canal, b) dilution sucks, and c) they are quantifiable attributes, easy to compare or rate good/bad. It can seem like speed and/or price are the most important things to optimize for in a fundraise.

Venture Capital 66

Venture Capital Silicon Valley Memphis Cap Table 66

Startup Professionals Musings

JANUARY 15, 2021

This is called stock dilution control. This allows the entrepreneur more influence in controlling dilution of his or her shares, investment terms and acquisition decisions. Otherwise, people with no ongoing effort (“free riders”) will own the value growth that you are adding after their departure.

Vesting 298

Vesting Dilution Stock Founder Vesting 298

Startup Professionals Musings

SEPTEMBER 27, 2023

This is called stock dilution control. This allows the entrepreneur more influence in controlling dilution of his or her shares, investment terms and acquisition decisions. Otherwise, people with no ongoing effort (“free riders”) will own the value growth that you are adding after their departure.

Stock 240

Stock .Net Vesting Founder Vesting 240

Both Sides of the Table

MAY 28, 2018

Of course there are times where 15% dilution is more appropriate and other times it can be 33% but in a first meeting we’re just trying to establish general ranges for reasonableness. Every VC knows that the amount you raise is often a proxy for your valuation.

Burn Rate 247

Burn Rate Valuation Pre-Money Valuation Dilution 247

The Startup Lawyer

MARCH 1, 2011

I hate non-dilution rights and if you are an entrepreneur you should, too. I’m not talking about price-based anti-dilution protection that is typical in an angel or VC round. But the fact that the startup’s founders are being diluted by such an issuance should provide enough protection.

Dilution 89

Dilution Equity Stock Startup 89

Gust

NOVEMBER 1, 2011

in the case of one investment round, no subsequent investment and therefore no dilution). I have seen some complex methods for accommodating anticipated dilution, but here is an easy way to adjust the pre-money valuation of the current round. Then: Post-money Valuation = Terminal Value ÷ Anticipated ROI.

Venture Capital 161

Venture Capital Valuation Pre-Money Valuation Post-Money Valuation 161

ithacaVC

SEPTEMBER 10, 2012

But here is one that I want to focus on in this post: “Can I ask for undiluted stock (non dilution clause)?” I am not even sure what “undiluted stock” is, but safe to say the person (I will call him Exec X) meant stock that his equity would not be dilutable in terms of ownership. Actually, I got many questions.

Dilution 53

Dilution Employee Cap Table Stock 53

Startup Professionals Musings

OCTOBER 13, 2021

It’s easy to say “yes” to one more feature request after another, until the potential for real impact gets diluted. Otherwise, your most innovative and disruptive product thinking will be diluted and lost, killing your dream of a better world. While the idea was great, they failed on execution.

Dilution 334

Dilution Metrics Acquisition Revenue 334

The Startup Magazine

MARCH 14, 2022

The equity dilution at this nascent stage is on desirable terms; such investing can lead to profitable returns. At this stage, the founder mainly raises funding from their sources or family and friends. If you are one of the fortunate early-stage investors to be presented with such an opportunity, it could lead to rewarding returns.

Technical Review 152

Technical Review Due Diligence India Startup 152

Gust

OCTOBER 17, 2022

Janelle van Deventer breaks down the options for raising capital through bootstrapping, dilutive investors, government subsides and various forms of debt. Between COVID, the evolution of the API economy, and a increase in second, third & fourth time founders who are seeking funding.

Dilution 184

Dilution API Bootstrapping Government 184

Up and Running

JULY 2, 2014

of our company in exchange for the $300K, and my business partner and I each diluted from 50% ownership down to 33.3% ownership and never dilute. When fundraising for a startup, all investors dilute as additional investors join in on the deal. The deal we made with him was he’d get 33.3%

Technical Review 118

Technical Review Angel Investor Due Diligence Dilution 118

YoungUpstarts

APRIL 19, 2012

When not approached carefully, growth can destroy value as it outstrips a company’s managerial capacity, processes, quality, and financial controls, or substantially dilutes customer value propositions. Growth can dilute a business’s culture and customer value proposition and put the business in a different competitive space.

Dilution 209

Dilution Virginia Management Washington 209

Startup Professionals Musings

JANUARY 31, 2020

In fact, they may fear team leadership as a burden, or a potential dilution of their ownership. Good entrepreneurs are often diluted in their potential by trying to attack too many new market opportunities or customer requests concurrently. Certainly interfacing to the outside world may not be an inventor forte.

Founder 312

Founder Intellectual Property Dilution Startup 312

Business Plan Blog

JANUARY 9, 2014

Fear of Dilution. Understand the difference between dilution and economic dilution, which occurs when the value of the business doesn’t change but the number of shares increases. Top 10 Reasons Why Startups Fail. Taking Money From The Wrong Investors. Look for local investors with strong character and domain experience.

San Diego 74

San Diego Dilution Technical Review Forecast 74

The Next Web

NOVEMBER 20, 2013

So, a fair split, would be closer to 60/40 in favor of the funding founder, when diluted for the cash. The calculation comes as follows: original 50/50 diluted down 20 percent to 40/40 for the financing, and then the one funding founder gets that 20 percent. How important is this person’s role?

Cofounder 136

Cofounder Equity Founder Seed Stage 136

Austin Startup

JULY 6, 2018

Re: cash, the more “unbundled” types of accelerators (less formalized, less equity) tend to not provide any cash upfront, but also typically “cost” less in equity, often just 1–2% of your fully diluted capitalization. Anti-Dilution. See: Startup Accelerator Anti-Dilution Provisions; The Fine Print.

Dilution 48

Dilution Startup Technical Review Equity 48

Startup Professionals Musings

OCTOBER 17, 2022

This can cause early investor dilution, lower ultimate returns or leave the startup stranded. Perhaps because of their focus on building a large portfolio, or their competitiveness, these angels sometimes accept valuations that cause later friction while moving to VCs, or even other angel groups.

Angel Investor 342

Angel Investor Venture Capital Silicon Valley Portfolio 342

Startup Professionals Musings

FEBRUARY 27, 2023

Every startup needs to start their funding search looking for grants, with no equity dilution, as well as contests and foundations. Other project and research reports in their library are a rich source of new ideas, if you are still looking for a place to start. Get help with grant funding and incubator resources.

Arizona 276

Arizona Intellectual Property Accredited Investor Entrepreneur 276

Startup Professionals Musings

NOVEMBER 7, 2022

Don’t let early success dilute your focus, or demand that the new venture quickly meet your mainline financial and growth metrics. Feedback from pilots and early experiments must be integrated to maintain momentum. Scaling any new initiative globally these days takes a large ongoing investment, and a carefully thought-out plan and execution.

Advisory Board 359

Advisory Board Incubator Dilution Agile 359

Startup Professionals Musings

JULY 1, 2022

You should also assume that your percentage will go down through dilution as the company raises additional rounds, and offer sizes will go down as the company grows. Any offers of equity compensation before the first round of institutional capital should be considered purely speculative.

Stock Options 343

Stock Options Advisory Board Stock Startup 343

This is going to be BIG.

MAY 17, 2012

Getting less dilution than standard means that you have to have made fantastic progress, have a world class team, etc. The question then becomes whether or not there's any significant reason to move off of that default. Note that, to even get venture in the first place, you are special.

Venture Capital 115

Venture Capital Framework Dilution Equity 115

This is going to be BIG.

JANUARY 18, 2024

Instead of getting hung up on what their better-funded competition was doing, they focused on executing on their near-term goals, then setting new ones, then executing on those, and so on and so on, all the way up to a billion-dollar acquisition with very little dilution taken along the way.

.Net 88

.Net Cap Table Startup Technical Review 88

Startup Professionals Musings

NOVEMBER 5, 2022

Outside contracts and freelancing rapidly dilute everyone’s focus on the higher company mission and purpose. The recent pandemic, global outsourcing, and new remote collaborative tools have increased the need for company-centered team management, rather than reduced it.

Management 333

Management Dilution Forecast Leadership 333

Startup Professionals Musings

OCTOBER 7, 2022

Most professional investors will expect preferred stock, a board seat, rights to later rounds and perhaps anti-dilution protection. The average valuation for angel investments is $2 million, which will get you $500,000 for 20 percent of your startup. Are you flexible on the terms of the investment?

Preferred Stock 304

Preferred Stock Exit Strategy Equity Angel Investor 304

Startup Professionals Musings

NOVEMBER 8, 2021

Of course, that doesn’t dilute the owner’s equity, but it may well limit you to organic growth, versus international rollouts and acquisition options. Startup funding comes from personal savings and family. There is no free lunch for money. Non-equity funding has to come from personal sources, or government grants, or bank loans.

Entrepreneur 371

Entrepreneur Equity Dilution LLC 371

Startup Professionals Musings

JULY 24, 2022

Overcoming execution obstacles is combating dilution, not compromising, for these innovators. They seek smart people, who openly express their doubts, and then collaborate to overcome them. Work from the challenge backward, rather than capability forward. Their mindset is not ‘if-then’ but ‘how and how else?’

Marketing 313

Marketing Dilution Social Network Government 313

ReadWriteStart

JANUARY 27, 2011

I have discussed at length why revenue sharing channel deals may serve as perfectly fine alternatives to raising equity (or even complements) because of their non-dilutive nature. For a more elaborate explanation of the deal, please read my blog post 1M/1M: Alternative Financing For Startups Using A Sales Channel Partner.

Dilution 114

Dilution Revenue Finance Entrepreneur 114