A founder gave away too much equity in the early rounds and will become a minority holder in the company before series A. How can this be tackled?

Don’t raise venture capital.

  • Venture capital is not a gift. Your VC investors are looking for 10x returns.
  • Venture capital is not an accomplishment. It’s a means to an end. A way to either get your company off the ground, or to grow faster.
  • Venture capital is not free. In fact, it is very expensive (i.e., dilutive) in the early stages.
  • Venture capital is not a tap. You cannot expect your VCs to write you a second and third check. Do so at your folly. The next check is earned.
  • Venture capital is highly dilutive.  Highly.  The average founder-CEO owns 15% at IPO.

If you don’t want to be diluted to a minority holder, whatever you do — don’t raise venture capital.

Bootstrap or otherwise slug it out.  Mailchimp did.  Atlassian did (it some sold secondary shares, but never primary shares to raise capital).

As a rule, only raise venture capital when you have to, or when it’s “cheap”.

Venture Capital, at least U.S.-style venture capital, is meant for folks going for large outcomes that are willing to be diluted to smaller stakes in exchange for capital.

I.e., venture capital is for CEOs that would rather in the end own 20% of something worth $1b than 100% of something worth $20m.

That choice, that trade-off, may not always be logical. If it isn’t to you — don’t do it.

A related post here:

At the Top SaaS Companies, Founder-CEOs Own ~15% at IPO. And Most Co-Founders Are Not Equal (And That’s OK). UPDATED

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