4 ms·
Understanding How Dilution Affects You At A Startup
- notbitter 15y agoWhen investors talk about dilution numbers they only present the best case scenario, and this post is no exception. If you really want to understand dilution, don't look at the best case. You need a graph showing your payoff as a function of exit size. Pay special attention to the range where liquidation preferences and multipliers kick in, because the sharks aren't going make you an infographic for that case.
- spoon16 15y agoHave you seen anything like what you describe that you can share?
- notbitter 15y agoUnfortunately not. The people who have that spreadsheet would find it very hard to hire if employees knew how the game was rigged.
- notbitter 15y agoActually, it looks like Fred Wilson did an example here: http://www.avc.com/a_vc/2011/10/liquidation-analysis-continued.html http://www.avc.com/a_vc/2011/10/liquidation-analysis-continu... Note that his example does not show a multiple on the liquidation preference, and it doesn't show how the early employees can get screwed even when the founders do well. But it's more realistic than Suster's infographic.
- vsl2 15y agoInformative in a nice visual way. Bottom line #1 - the actual sale price of the startup can have very little to do with what the founders get to take home (especially after taxes). Bottom line #2 - (obviously) increase the startup value by orders of magnitude if looking for FU money.
- mtr 15y agoActually I didn't find the infographic that easy to understand. Here's a version I made that shows a large amount of money going into the business but the founder value increasing at a slower rate due to dilution: http://bit.ly/qO90k5 http://bit.ly/qO90k5