Selling 50 Percent by End of Seed Round Is Not Insane

Is giving up 50% of your company after your seed round "actually insane"?

No, actually not that crazy! (and it's selling*, not giving up, if we're being pedantic).

Let's do some actual math.

These days, the following path is pretty common:

• Pre-seed on SAFEs: raise maybe $1.5 million and sell 10% of the company (actual dilution to be taken on in the first priced round of course).

• Seed (on SAFEs or priced): raise another $3M-$4M, sell 20% of the company.

• Option pool for employees: 10-12% of company equity.

Add it all up, and by the time the seed round is closed the founders own 58% or so.

Now, is this "good" or "bad"? Neither. It's the market. Back in the day (circa 2015-2018), raising $5M would be Series A money at least. Now venture is more professionalized, so the round sizes get bigger at earlier stages and so does the dilution.

I'll note that in this refreshed data below, clearly the AI founders end up holding on to a bit more of their companies at each stage than the non-AI founders. That's a new dynamic over the last 12 months or so.

The big thing most people miss is they lump in the option pool with the founder ownership for some reason, making the true numbers look worse by comparison.

The other tagline you often hear is "founders should exit their Series A rounds with 50%+ of the company".

Just know that only about 1 in 4 founding teams actually pull that off.

So yeah - dilution is high. What can be done about it?

1. Don't raise VC (or raise less VC). This should be your 𝗱𝗲𝗳𝗮𝘂𝗹𝘁 option unless you're building something that demands lots of capital upfront.

2. Negotiate better terms for your dilution (either by trading off in other key deal clauses or by being in such high demand from investors you get to dictate terms).

3. Get Zen about it 🙏

The more you know!