What percentage of your company do you dilute at each funding stage? Analyzing the current landscape for SaaS founders regarding equity dilution reveals pivotal insights into how much of your company typically exchanges hands at each fundraising stage. Here’s a breakdown based on the comprehensive review by Peter Walker from Carta presented at SaaSOpen 2024. Founder Equity Dynamics: Initially, if you're launching with a partner, expect a common split of 55% to 45% between two cofounders. This distribution often shifts in teams with a lead founder, who might retain a larger share. Dilution Insights: 1. SAFE Instruments: While SAFEs (Simple Agreement for Future Equity) offer a flexible route to funding without immediate dilution, they're not without cost. The cumulative effect of multiple SAFE rounds can lead to significant anti-dilution impacts once they convert in a priced round. 2. Standard Dilution Rates: Retaining 20% of equity through both your Seed and Series A rounds continues to be the standard. This benchmark helps maintain founder control while securing necessary growth capital. 3. Bridge Rounds: More prevalent than ever, bridge rounds—whether through priced equity or convertible instruments—introduce additional dilution layers. Founders should strategize the timing and structure of these rounds to minimize impact. 4. Equity at IPO: By the time a SaaS company reaches the IPO stage, founder equity can vary significantly. There's no "one-size-fits-all" model, highlighting the importance of tailored financial and strategic planning throughout the company's growth phases. Actionable Insights for SaaS Founders: - Plan Funding Strategically: Be mindful of how funding rounds, especially those involving SAFEs and bridge rounds, will dilute your stake. Planning and negotiation are key to retaining meaningful ownership. - Understand Market Norms: Keep abreast of current market standards for dilution at various stages to better negotiate terms with potential investors. - Prepare for Variability: Acknowledge and prepare for the variability in founder equity leading up to an IPO. Decisions made early in the venture can significantly affect outcomes years down the line. - Regular Review: Continuously review your cap table and funding strategy as your business evolves to ensure alignment with long-term goals. Equity dilution is an inevitable part of growing a SaaS company but understanding and managing it effectively can lead to more favorable outcomes for founders as they navigate from seed to IPO. #startups #entrepreneurship #venturecapital #investing #finance #crossborder #inovexus #startup #VC #earlystage
Excellent post, Philippe Roche! Diluting your equity is similar to giving away portions of your cake to ensure its growth. However, it's important not to overlook the SAFE rounds, as they can be deceptively tricky. I've witnessed many entrepreneurs caught off guard by the amount they've surrendered during conversion. Therefore, it's always best to plan ahead!
Philippe Roche love the “comparison is the thief of joy” quip
Angel Investor | 1in100 Ventures | Healthcare
10 个月Thanks Philippe Roche for highlighting this critical aspect to startup building for founders. Founders MUST take the time to understand how each round of capital raising dilutes their holding and how it impacts how much they end up with at the exit, whichever way that may be. The start up's equity is often the only currency founders have to spend when they start but they should be aware it quickly becomes the most expensive currency to part with.