Startup Funding Espresso – Founder Dilution

Founder Dilution

Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.

Founders raising funding incur dilution.

Their ownership stake goes down as they raise more funding.

Founders start with 100% ownership.

Each round of funding dilutes them by 25% or more.

On average, founders own 60% after the pre-seed and seed rounds.

After a Series A, they own 45%.

After a Series B, they own 26%.

After a Series C, they own 25%

After a Series D, they own 11%

There are often two to three founders in a startup, so they split this amount.

Investors should consider the impact of dilution on the founder's ownership stake.

If they own too little of the company, they may not find the incentive to carry it to an exit.

Founders should consider funding strategies that are more capital-efficient.

For example, after one round of funding, the company could grow based on revenue and profits alone. 

This may take longer, but it will reduce the dilution.

 

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let's go startup something today.

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