How much Stake should Founders retain?
As an entrepreneur there’s a lot riding on the outcome of your negotiations with potential investors. The biggest trade off being between the funds you seek from the investors and the control that you’re willing to give away in return. Here’s what we found out from our analysis of India's 68 Unicorns:
Seed Stage – At the end of the seed round of funding entrepreneurs were left with a median ownership stake of 71%. However, founders of BlackBuck, BharatPe and Vedantu retained over 90% stakes after the seed stage.
Series A – At the end of Series A round, founders retained a median ownership stake of 48%. However, several companies like Nykaa, Upstox and Pristyn Care had founders share greater than 70% after Series A. Whereas, the founders share in Zeta and PineLabs were less than 20%.
Series C - At the end of Series C round entrepreneurs were left with a median ownership stake of 27%. The founders of only 1 company - Pristyn Care owned a majority stake (i.e. >50%) at the end of Series C.
So now you have robust benchmark to beat. If you’re diluting less than 29% in seed stage, you know you’re better than an average Unicorn. But at the same time, you can’t forget about this lesson from the book Venture Deals by Brad Feld and Jason Mendelson –
A few compromises are just a part of the game, but be sure you know exactly what you want when it comes to money and influence. Moreover, set your own limits and know when to walk away from the negotiation table.
This article is a part of December'21 edition of our Startup Newsletter. Here's the complete publication: