Startup Dilution Expectations

A good rule of thumb for startup dilution is ~50% dilution for the first ~$3M raised.

Scenario 1–50% dilution:
$100k @ $1M = 10% | $800k @ $4M = 20% | $2M @ $8M = 20%

Scenario 2–45% dilution:
$100k @ $1M = 10% | $100k Accelerator = 7% | $600k @ $6M = 10% | $2.1M @ 10M = 18%

Transcription

Hello, Everyone. Today, we’re talking about startup dilution expectations. If you’re going to raise money for your startup, it’s important to understand what you’re getting into. A good rule of thumb is to expect about 50% dilution for your first $3M raised.

I’ve included two scenarios in the slides and as you can see from those scenarios, you’re going to expect about 10 to 20 percent dilution on each round almost regardless of what you do. The other important thing to note: is that going through an accelerator program can absolutely reduce your overall dilution, which is great, but you are taking some risk because you’re going to experience more dilution up front when you take investment from them in those early days.

Despite giving up 50%, which is an awful lot, for $3M. You actually shouldn’t worry about this because you’ll be able to get this stock back later in the future as the board will want to incentivize you to stay in at the company after you’re fully vested; in 4 to 6 years time.

We have a good example of this: Facebook gave away similar amounts of equity in its early days, but when the company IPO’d Mark Zuckerberg still owned about 28%.

Pre-seed Investor. Email: ash@sterlingroad.com. B2B, US only. I work with founders for 3 months before investing. More info: http://SterlingRoad.com/process

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