4 ms·

Love the post, though the dilution #s seem whacky to me (my experience is somewhat limited). First, it seems like an odd assumption that you'll be doing 3-4 ro

Love the post, though the dilution #s seem whacky to me (my experience is somewhat limited). First, it seems like an odd assumption that you'll be doing 3-4 rounds of financing before you exit. I've no idea to what degree that's the norm, but the founders I've known who've seen exits, very few had done a B round, much less a C or D. Certainly, companies who do C and D rounds tend to exit for MUCH higher sums than $30-50m. Gabriel, you saw an exit. At the time, did YOU own 30% of the company? I assume not. do you think 30% is the a normal number for founders to share at an exit? I don't-- but again, my experience is limited.

epi0Bauqu 16y ago
In my case, the founders owned 100% of the company--we never had any external investment or employees. Just to clarify, I was only suggesting further rounds (beyond A) for when you're really swinging for the fences, i.e. gunning for an IPO or a really really big exit. As for the dilution numbers, 30% is accurate if you raise a series A. For some data check out http://www.wsgr.com/publications/PDFSearch/entreport/Winter2008/private-company-financing-trends.htm http://www.wsgr.com/publications/PDFSearch/entreport/Winter2... and scroll down to the graphs. To quote a friend, "In an A round, VCs typically do an 'n on n' investment, e.g. $3M on a $3M pre-money, or $4M on $4M, or 5 on 5." That means they're taking 50%. Then you add in the option pool. You could get less if you have a lot of traction, but to get there you probably raised an angel round that had dilution, so you're about at the same place. Play around with http://www.ownyourventure.com/equitySim.html http://www.ownyourventure.com/equitySim.html to see the possibilities.
- webwright 16y ago
  I don't think those charts support your numbers (they show a median of $3m raised on $6m pre... $9m post-money, 33% sold). The idea that founders collectively own 30% of the company after a Series A is pretty wrong in my experience (I've raised a Series A and have lots of friends who have as well-- inside and outside of the "YC Mafia"). If I ever had a friend tell me they had a term sheet for $3m on a $3m pre-money valuation, I'd tell them they were either lacking leverage or that someone was trying to take advantage of them.
  - epi0Bauqu 16y ago
    I'll see if I can dig up some better #s. But a few comments... --to get that leverage you usually have to meet some milestones (get some traction), and that is usually done from a seed round where you already gave up some dilution. I think it can be increasingly done via YC (6%) or even by one-self, but there are still certainly a lot of seed -> series A --the eventual dilution # also includes the option pool (another 20%). Like I said in the post, not all of this may be allocated at the time of acquisition, but it may be and it does sit out there on the cap table. --I assume you and your friends have raised from relatively well-known top tier VCs. There are tons of VC firms we've never heard of, so when you look across everything I think the #s may look different. WSGR is of course seeing top-tier deals. --This is mainly for first time entrepreneurs, who for many reasons are often in a position of less leverage. Of course, as I said traction trumps everything, so I think you should go for that first. It's the quickest path to exit and the least dilution.

epi0Bauqu 16y ago

In my case, the founders owned 100% of the company--we never had any external investment or employees. Just to clarify, I was only suggesting further rounds (beyond A) for when you're really swinging for the fences, i.e. gunning for an IPO or a really really big exit. As for the dilution numbers, 30% is accurate if you raise a series A. For some data check out http://www.wsgr.com/publications/PDFSearch/entreport/Winter2008/private-company-financing-trends.htm http://www.wsgr.com/publications/PDFSearch/entreport/Winter2... and scroll down to the graphs. To quote a friend, "In an A round, VCs typically do an 'n on n' investment, e.g. $3M on a $3M pre-money, or $4M on $4M, or 5 on 5." That means they're taking 50%. Then you add in the option pool. You could get less if you have a lot of traction, but to get there you probably raised an angel round that had dilution, so you're about at the same place. Play around with http://www.ownyourventure.com/equitySim.html http://www.ownyourventure.com/equitySim.html to see the possibilities.

webwright 16y ago
I don't think those charts support your numbers (they show a median of $3m raised on $6m pre... $9m post-money, 33% sold). The idea that founders collectively own 30% of the company after a Series A is pretty wrong in my experience (I've raised a Series A and have lots of friends who have as well-- inside and outside of the "YC Mafia"). If I ever had a friend tell me they had a term sheet for $3m on a $3m pre-money valuation, I'd tell them they were either lacking leverage or that someone was trying to take advantage of them.
- epi0Bauqu 16y ago
  I'll see if I can dig up some better #s. But a few comments... --to get that leverage you usually have to meet some milestones (get some traction), and that is usually done from a seed round where you already gave up some dilution. I think it can be increasingly done via YC (6%) or even by one-self, but there are still certainly a lot of seed -> series A --the eventual dilution # also includes the option pool (another 20%). Like I said in the post, not all of this may be allocated at the time of acquisition, but it may be and it does sit out there on the cap table. --I assume you and your friends have raised from relatively well-known top tier VCs. There are tons of VC firms we've never heard of, so when you look across everything I think the #s may look different. WSGR is of course seeing top-tier deals. --This is mainly for first time entrepreneurs, who for many reasons are often in a position of less leverage. Of course, as I said traction trumps everything, so I think you should go for that first. It's the quickest path to exit and the least dilution.