Giving up a piece of your company is never easy and it only gets harder with every additional investment round, every new advisor or team member that commands equity. The founders’ ownership percentage will keep going down and the pain point becomes how much of the company they can retain (after all that hard work, sleepless nights and sacrifices) when they can finally exit their company. Of course, its important to note the old adage of ‘Do you want 100% of something small or 20% of a large pie.’ The reality is that without investors, talented recruits and advisors, most startups will have an almost impossible task in achieving market validation (and a high market valuation). Therefore, the goal becomes to ensure that the value of the startup keeps going up enough at each dilution point so that even though you own a smaller percentage of, its a smaller percentage of a much larger business and therefore your total personal value goes up.

Barring founders who have the personal wealth, experience and network to keep the motor running without diluting themselves, these are the considerations a startup founder needs to have on future dilution:

1. Co-founders (Depending on number of founders, at time of split this could be anywhere from 10-70%)
2. Angel Investors (At time of a seed round, anywhere from 5-30%)
3. Professional Investors (At time of VC round usually a minimum of 15%, most commonly 25%)
4. Advisors (Anywhere from 0.5-5% depending on stage of company, or alternatively stock options)
5. Key employees (Anywhere from 2-15% + stock options at time of hire)

For example, at a valuation of $2M, one of the founders owns 20% (worth $400k) with the co-founders, investors and other key advisors owning the other 80%. Following a round of venture capital at a $7.5M pre-money valuation seeking $2.5M, the new investors now own 25% (2.5M/10M post-money valuation) and the founder’s stake is down to 15%. However that 15% has appreciated to $1.5M ($1.1M gain).

Effective management of founder (and investor) dilution is possibly one of the hardest issues facing successful startups. It’s important to find the right balance between protecting dilution and assigning equitable value to all the aforementioned parties (whether that is employees, advisors or investors) in order to ensure that the startup grows fast enough but also that the founders keep enough of the equity to make all that work worth it.