Why Seed Round Dilution Is Falling for Founders

30% of the company for a seed round? No thanks!

Digging into why dilution seems to be falling, especially for software startups. First, couple notes:

• This is primary round dilution. Founders are also diluted in all the bridge rounds, the convertible notes between rounds, etc.

• This is just software (read: mostly AI) companies.

• Median rounds are getting bigger over time, so that's not the reason for falling dilution.

So what's up?

I think a couple trends are colliding here. First, it's not easy to fundraise right now. Yes, I know, X is full of $40M raised here and $100M raised there. But the bar has gotten much higher and most VCs are being more selective in their investments.

Perhaps paradoxically, that means that the startups that DO raise may have more leverage to keep dilution lower than in prior eras. Valuations in competitive deals are rising faster than the cash invested, effectively.

I also think some of this is a natural outgrowth of staying private longer. If the model has to take into account Series D, E, F, and G rounds...well, gotta have enough equity for those as well.

There is likely a bit of a bar-belling dynamic at play. Series A founders, for instance, are often raising much more or much less than the median round (currently $12M).

Fascinating to watch the general market adjust to a new world - but for individual founders, don't let the perfect be the enemy of the good here. Dilution is important, but staying alive is more urgent 🙏