3 ms·

It may be my misunderstanding, but isn't 11% ridiculously low? As I founder, if I sold almost 90% of MY company along the way, I would feel like I didn't do go

by tzaman 10y ago

It may be my misunderstanding, but isn't 11% ridiculously low? As I founder, if I sold almost 90% of MY company along the way, I would feel like I didn't do good enough job of building it without relying too much on other investors.

richmarr 10y ago
Depends on the market though. For example if your market requires large capital investment, e.g. insurance, banking, you could expect to part with a good proportion of your equity at every raise. If you're a non-capital-intensive business and you still ended up with 10% at IPO I really wouldn't beat yourself up too much... You still did what very few people in the world have managed.
- acjohnson55 10y ago
  Yep. It totally depends. At the end of the day, if the company exits for $1B, whether I've got $110M or $470M is big in some sense, but immaterial in other senses. And how that money is raised is subject to so many factors that interact with where the business is and where the external market is. The way I look at it, the big differences in ownership stake are 51% vs. 30% vs. 3% versus 0.3% versus 0.03%. Do what you gotta do to be successful in the first place, don't worry about percentages of percentages.
marcosdumay 10y ago
If you are 3 founders, the initial value is already 33%...
TheDrizzle43 10y ago
Turns out VC's don't give companies millions of dollars for nothing :)
- tzaman 10y ago
  True, but you can hardly call a company you only own 11% of - your company. It's someone else's. But then again depends what and why your doing it. If that 11% is worth enough to you (and the company is otherwise healthy), then you might not even care.
cloudjacker 10y ago
Yes if you sold 90% of your company its not your company anymore It perplexes me why such obvious realities are hard to grasp amongst budding entrepreneurs Where does that misplaced pride come from? Form the asset, sell the asset. Don't get married to it!
- jomamaxx 10y ago
  "Where does that misplaced pride come from?" I don't think it's misplaced at all. There's no way 'not' to be 'married' to your startup. For entrepreneurs, it's a 'life' investment, for VC's it's a calculation. There is no doubt that VC's play an essential role. There is also no doubt that VC's have incredible leverage in the situation. They also have completely different motivations. A 'not wealthy' entrepreneur, who's trying to make something big, is in a very weak position compared to very wealthy VC's, who can opt to chose the pick of the litter. The personal attitude and objectives among most VC's is very, very different than that of entrepreneurs. VC is definitely capital. They are bankers first. Most entrepreneurs have broader objectives. That plays out in the deal. Finally - VC's see deals all day, every day, and know all of the tactics. Most entrepreneurs go through one set of deals in their entire lives. It's like playing a single hand of poker against someone who plays all day, every day.

by tzaman 10y ago

richmarr 10y ago

Depends on the market though. For example if your market requires large capital investment, e.g. insurance, banking, you could expect to part with a good proportion of your equity at every raise. If you're a non-capital-intensive business and you still ended up with 10% at IPO I really wouldn't beat yourself up too much... You still did what very few people in the world have managed.

acjohnson55 10y ago
Yep. It totally depends. At the end of the day, if the company exits for $1B, whether I've got $110M or $470M is big in some sense, but immaterial in other senses. And how that money is raised is subject to so many factors that interact with where the business is and where the external market is. The way I look at it, the big differences in ownership stake are 51% vs. 30% vs. 3% versus 0.3% versus 0.03%. Do what you gotta do to be successful in the first place, don't worry about percentages of percentages.

marcosdumay 10y ago

If you are 3 founders, the initial value is already 33%...

TheDrizzle43 10y ago

Turns out VC's don't give companies millions of dollars for nothing :)

tzaman 10y ago
True, but you can hardly call a company you only own 11% of - your company. It's someone else's. But then again depends what and why your doing it. If that 11% is worth enough to you (and the company is otherwise healthy), then you might not even care.

cloudjacker 10y ago

Yes if you sold 90% of your company its not your company anymore It perplexes me why such obvious realities are hard to grasp amongst budding entrepreneurs Where does that misplaced pride come from? Form the asset, sell the asset. Don't get married to it!

jomamaxx 10y ago
"Where does that misplaced pride come from?" I don't think it's misplaced at all. There's no way 'not' to be 'married' to your startup. For entrepreneurs, it's a 'life' investment, for VC's it's a calculation. There is no doubt that VC's play an essential role. There is also no doubt that VC's have incredible leverage in the situation. They also have completely different motivations. A 'not wealthy' entrepreneur, who's trying to make something big, is in a very weak position compared to very wealthy VC's, who can opt to chose the pick of the litter. The personal attitude and objectives among most VC's is very, very different than that of entrepreneurs. VC is definitely capital. They are bankers first. Most entrepreneurs have broader objectives. That plays out in the deal. Finally - VC's see deals all day, every day, and know all of the tactics. Most entrepreneurs go through one set of deals in their entire lives. It's like playing a single hand of poker against someone who plays all day, every day.