10 Entrepreneur Myths That Need Not Dilute Your Focus

Startup Professionals Musings

Most of you aspiring entrepreneurs probably have long searched for that special idea that will catapult you and your startup to success. Yet, my experience as a business advisor and investor has convinced me that the magic is not the idea, but you and the execution.

How does equity dilution work for startups?

Gust

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. Therefore, to avoid dilution to its existing equity holders, all a company has to do is not hire any more employees who get options, or take any more money from investors.

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Dilution and Investors and Tension

ithacaVC

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. It is impossible to do a stock for stock business combination without existing shareholders being diluted. But now the diluted shareholders own a smaller piece of a larger pie hopefully.

Should I give my seed investors anti-dilution protection?

Gust

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. Even if you were willing to give it to him, it is highly, highly unlikely to stand up beyond the next financing round, because there’s no way your next investor is going to take a dilution hit for this first one.

Accepting A Non-Dilutive Government Grant? 5 Surprising Mistakes To Avoid

YoungUpstarts

Non-dilutive grants are a great way to fund your research, provided you’re working on a project that directly benefits the government according to current needs. Many companies pursue non-dilutive government grants because they don’t require giving away ownership in the company. . According to Upcounsel , typical non-dilutive grants include research grants, translational grants, and SBIR/STTR program contracts. Are you pursuing a non-dilutive government grant or contract?

Non-Dilution Rights are Wrong

The Startup Lawyer

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. What I’m referring to is a right given to a particular stockholder so that such stockholder’s equity in the company is not diluted by any future issuance of stock — regardless of the price. Startup Issues non-dilution startup

Early Employee Dilution

ithacaVC

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. It is legally possible to grant non-dilution via a contractual right. Those additional grants would prevent Exec X from being diluted.

How To Prevent Your Founder’s Shares From Vaporizing

Startup Professionals Musings

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. 83(b) election founders shares incorporate stock dilution

Strategy Roundtable For Entrepreneurs: Non-dilutive Financing Through Revenue Sharing

ReadWriteStart

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. During this week's One Million by One Million roundtable, we started with a discussion of our hot-off-the-press news: 1M/1M Announces Partnership With Persistent Systems; CrowdEngineering First Beneficiary.

Understanding How Dilution Affects You at a Startup

Both Sides of the Table

Dilution. million pre-money valuation, which is a $10 million post-money) you get diluted by 25% (2.5m / 10m). But understanding how you’re likely to get diluted over time is a more difficult concept. So here is our crack at explaining the world of dilution to you. If you want a deeper dive I shot some video on calculating ownership and dilution over tim e. This post originally appeared on TechCrunch.

The fine line between dilution and delusion

BeyondVC

I can also say that there is a similarly fine line between dilution and delusion but this one is easier to draw. So if faced with this situation, my only word of advice for entrepreneurs is that it is important to know that there is a fine line between dilution and delusion. The post The fine line between dilution and delusion appeared first on BeyondVC.

How To Raise Capital and How Raising Capital Has Changed

Gust

Janelle van Deventer breaks down the options for raising capital through bootstrapping, dilutive investors, government subsides and various forms of debt. How has fundraising changed in the last few years?

Walker Twitter Highlights: March 25th – April 7th

Scott Edward Walker

“Be careful not to have too many co-founders; it’s the most expensive dilution you’ll ever face.” Twitter Highlights co-founders dilution quora seed seed finance startup startup ideas startups I’m using Twitter as a form of micro-blogging to share interesting blog posts, articles and podcasts relating to entrepreneurship and startups, M&A and legal issues. Below are my five most popular tweets (via bit.ly ) for the past two weeks.

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Size of Pie, a.k.a. What Type of Entrepreneur Are You?

OnlyOnce

Although David is talking about taking in outside capital and founder dilution in pursuit of larger business growth and objectives, he is also getting to the same point about entrepreneur type. Business Entrepreneurship Venture Capitalists dilution entrepreneur equity Founders scalingSize of Pie, a.k.a. What Type of Entrepreneur Are You? Mmmm…pie.

8 Great Reasons to Bootstrap Your Startup

Early Growth Financial Services

Bootstrapping helps you to focus on your product in so much as … Continue reading → Financial Planning bootstrapping dilution enterpreneurship entrepreneurs equity fundraise profit margins self-fund small business financial planning startup startup financials vc venture capitalOriginally published in SoCalTech. To self-fund or to raise funds? That’s the big question that many founders ask themselves as they try to get their product and service to market.

7 Best Strategies for Maintaining Equity

Early Growth Financial Services

Whether you’re funded, seeking funding, or still bootstrapping, here are some of the best strategies for avoiding dilution and maintaining maximum equity: 1. Doing so will prevent unnecessary dilution and it allows you to get the highest possible value for each round. Of utmost concern to many entrepreneurs is how to retain maximum equity in their startups. Rightly so. It’s a constant balancing act: growing your company without losing control of it.

Should I Use My Investor’s Lawyer?

Scott Edward Walker

For example, he will explain to you how the liquidation preference works and run spreadsheets, if necessary, to show you how much money you will receive based on different sale scenarios; he will explain to you how the option pool works, including the founders’ significant dilution; and he will discuss what protective provisions are and other tricky legal terms, such as drag-along rights and anti-dilution provisions.

What Are the Rights of Minority Stockholders?

Scott Edward Walker

Startup Issues anti-dilution provisions controlling stockholders conversion rights derivative claim fiduciary duty inspection rights liquidation preferences minority stockholders oppression proper purpose redemption rights

Founder Ownership Math, Rainy Days, and Bigger Pies

This is going to be BIG.

Still, a lot of founders are worried about early dilution and how it affects their eventual outcome when the company is sold. That’s because dilution isn’t subtraction. If I get diluted another 23%, I own 77% x (1-23%), which is 59.29%. A lot is made out of the price of a round.

Monday Motivation: WHO DO YOU WANT TO BE – Motivational Speech

Hearpreneur

Don't dilute your vision when you stumble. This motivational video is to help CEOs, entrepreneurs and business owners start the week off inspired to become great. Here are some takeaways from the video: There's a price to pay for change. You have the ability to say you'll never be a victim.

5 Phases Of Every Startup That Regulate Your Success

Startup Professionals Musings

A common practice is to hire local employees who know the geographic culture, even though this may well dilute the company culture. This usually marks the end of organic growth, as partnerships and alliances aid growth, but again dilute the focus on culture.

Which Fundraising Round Should You Skip?

View from Seed

The reality is that if a founder raised every one of these rounds, and lead investors always got their “target” ownership, the level of dilution would be ridiculous. No good investor would want the founder/CEO of a company to have insufficient ownership by the series A, and every founder I know is sensitive to taking too much dilution. So, if a founder is going to avoid this level of dilution, the question is “which round to skip?”.

5 Preconditions for Success in Spawning a New Venture

Startup Professionals Musings

Don’t let early success dilute your focus, or demand that the new venture quickly meet your mainline financial and growth metrics.

6 Reasons That Managers Still Add Value In Business

Startup Professionals Musings

Outside contracts and freelancing rapidly dilute everyone’s focus on the higher company mission and purpose.

7 Short-Term Business Mistakes Can Limit Your Impact

Startup Professionals Musings

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.

How To Prevent Gaps in An Innovative Startup Strategy

Startup Professionals Musings

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. Everyone in the business world has heard of the classic bestseller by Geoffrey A.

5 Keys To Negotiating Your Fair Share Of Any Startup

Startup Professionals Musings

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.

6 New Venture Funding Realities To Guide Your Efforts

Startup Professionals Musings

This can cause early investor dilution, lower ultimate returns or leave the startup stranded.

The Road Less Traveled: Non-Standard Early Stage Funding Paths

View from Seed

The challenge with pre-seed rounds is that pricing will sometimes be pretty dilutive. The downside is that YC is itself quite dilutive, the program itself may not be a great fit, and there are many many companies out of your batch that won’t be one of the anointed winners. So your net dilution may end up worse and you may miss out on working with a really hands-on pre-seed partner early in your company’s life.

Why LP’s Passed on Seed Funds 10 Years Ago (And What’s Happened Since)

View from Seed

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.

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8 Parameters To Bracket New Venture Funding Requests

Startup Professionals Musings

Most professional investors will expect preferred stock, a board seat, rights to later rounds and perhaps anti-dilution protection. One of the big questions that every entrepreneur struggles with is how much funding they should request from investors in the first round.

Equity 248

Diversifying Your Offering

Mike Michalowicz

. Business check point: Are you diversifying your offering, or diluting your company’s impact? Sometimes the more offerings you provide, the more risk for brand dilution, which ends up weakening your business.

Should You Negotiate Ownership Options In A Startup?

Startup Professionals Musings

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.

6 Motivations That Lead To Key Market Transformations

Startup Professionals Musings

Overcoming execution obstacles is combating dilution, not compromising, for these innovators. Real innovation in the business world is still rare.

Why Successful Startups Often Have A Pair Of Founders

Startup Professionals Musings

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.

What is it Like to Negotiate a VC Round?

Both Sides of the Table

When you do, my 20% becomes 15% and thus my true price for your round is actually higher than it appears when I invested because I already know I’m going to face more dilution for options. Option pool (likely dilution in the future, which is a function of a higher price just not yet defined). Then you’ll willing to take more dilution for them. As I mentioned if you raise $2m on $8m pre-money you take 20% dilution.

10 Startup Founder Decisions That Have No Good Answer

Startup Professionals Musings

The downside is loss of control and financial dilution. Most entrepreneurs struggle with many startup founders quandaries in building their business, and these key dilemmas are probably the biggest source of pain and failure for the entrepreneur lifestyle.

Financing with grants, not equity or debt

Berkonomics

The company was funded entirely by grants from the National Institute of Health, amounting to millions of non-dilutive dollars in all. No dilution to shareholders or the founders. First, an example of grant-based financing .

Build a Profitable Business – By Standing Out

Mike Michalowicz

Don’t water your skills down or dilute your service offering by having too many to choose from. . think the common thing that entrepreneurs get wrong is that we think we need to do all the things. . Reality check: You only need to do one thing. And better than anyone. . Like really well.

6 Management Strategies To Maintain Brand Leadership

Startup Professionals Musings

Yet every change can cause brand dilution or competition you don’t need. Every one of you business owners I know has worked hard to build your brand, and recognizes the critical value of instant brand recognition and leadership.

What Does the Post Crash VC Market Look Like?

Both Sides of the Table

At our mid-year offsite our partnership at Upfront Ventures was discussing what the future of venture capital and the startup ecosystem looked like.

8 Expectations To Check Your Entrepreneur Motivation

Startup Professionals Musings

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.

7 Tips To Raise Your Entrepreneur Instincts In School

Startup Professionals Musings

A popular myth these days is that finishing college only dilutes your entrepreneurial instincts, and the best of the best, including Bill Gates, Steve Jobs and Mark Zuckerberg, dropped out early to hasten their success.