Founders Sell 20 Percent at Seed and 20 Percent at Series A

Founders - your peers are selling about 20% of their companies in a seed round and another 20% in the Series A.

This target ownership figure seems to be dictating a lot of the dynamics around valuations and fundraising amounts, as it remains relatively stable year over year as valuations rise and fall.

Data below is for software companies raising priced rounds (just primary rounds, no bridge funny business). Over 9,600 rounds included, US only.

Note that these figures don't touch on the expected dilution for hardware, biotech, or medical device companies. If you'd like that graphic, shout it out in the comments!

𝗗𝗶𝗹𝘂𝘁𝗶𝗼𝗻 𝗧𝗿𝗲𝗻𝗱𝘀

• 20% (or just above) is the median for seed and Series A, has been since 2021.

• Something just under 25% is the 75th percentile value for seed and A over the same time frame (so anything above 25% is pretty significant dilution).

• The least-dilutive deals are going off around 15% or so for seed and A.

• Structured terms (things like liquidation multiples over 1x or participating preferred stock) remain rare at seed and A, so these dilution numbers aren't masking underlying difficulties.

• 𝗙𝗲𝘄𝗲𝗿 𝗰𝗼𝗺𝗽𝗮𝗻𝗶𝗲𝘀 𝗮𝗿𝗲 𝗿𝗮𝗶𝘀𝗶𝗻𝗴 𝗼𝘃𝗲𝗿𝗮𝗹𝗹 𝗶𝗻 𝟮𝟬𝟮𝟰 than did so in say 2021. These "missing deals" explain a lot of the dilution stability (in that the deals that may have dragged median dilution higher just aren't getting done these days).

At the early stages, dilution is the metric that informs the rest of the fundraising values. VC funds typically go into potential deals with a target ownership in mind, taking into account the need for founders to remain incentivized as well as the expectation of future dilution from more fundraising.

So 20% held steady even as valuations ballooned up in 2021 AND kept holding firm as valuations declined in 2023. Ownership > Valuation in negotiations, effectively.

Really interested in digging into the composition of these dilution figures in later graphics (are single firms increasing their ownership? Are deals happening with more participants lately? Etc). But if this sparks other questions for you, let me know below.

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