Founders - if you're in negotiations with a VC and they are asking for a higher percentage of your company due to "market conditions", show them this chart.
Median dilution (meaning percent sold to investors) in primary venture capital rounds in the US has actually 𝗱𝗲𝗰𝗹𝗶𝗻𝗲𝗱 from the second half of last year until now.
Look - there are many reasons why this may be the case and not all of them are founder-friendly.
𝗙𝗼𝘂𝗻𝗱𝗲𝗿-𝗳𝗿𝗶𝗲𝗻𝗱𝗹𝘆 𝘀𝗽𝗶𝗻 𝗺𝗶𝗴𝗵𝘁 𝗯𝗲:
VCs (especially at early stage) recognize that over-diluting the founding team sets up challenges that on for future investors.
The general startup market has settled on more reasonable terms for most deals (about 20% in seed and series A, for instance) even outside of Silicon Valley and NYC.
𝗙𝗼𝘂𝗻𝗱𝗲𝗿-𝘂𝗻𝗳𝗿𝗶𝗲𝗻𝗱𝗹𝘆 𝘀𝗽𝗶𝗻 𝗺𝗶𝗴𝗵𝘁 𝗯𝗲:
Only the "best" deals are getting done, and therefore the founders in those competitive deals still retain a lot of leverage in ownership discussions.
There's some increased expectation of bridge or extension rounds, typically led by investors already on the cap table - so they may increase their ownership through that route instead.
Terms like liquidation preference and participation are popping up a little more frequently than before.
But in general, it seems that even in this difficult fundraising environment, dilution for founders in a given round has drifted downward. Cool to see, even while the distributions with each stage remain rather wide.
(And take it easy on those VCs - they do need a certain percentage of ownership to make the math work on this whole asset class!)
𝗠𝗲𝗱𝗶𝗮𝗻 𝗗𝗶𝗹𝘂𝘁𝗶𝗼𝗻 𝗧𝗼𝗱𝗮𝘆
Seed: 20.4% sold to investors
Series A: 20.0% sold
Series B: 15.2%
Series C: 12.6%
Share with a fundraising founder! And if you're in pre-seed stage, shout out in the comments for a link to our pre-seed event on Wednesday morning where we'll cover dilution in SAFE or Note rounds.
Final caveat - this is across all sectors. If you want a sense of dilution for your sector specifically, let me know below.
#startups #fundraising #founders #dilution #venturecapital
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