Control Dilution Part 1

The number one thing that all first-time founders seem to have in common (myself included) is a very weak understanding of fundraising and cap table management. Now that I’m in the investor chair at Aviso Ventures, I find myself sharing these tips with almost every new founder I speak with. These tips come from personal learnings (sometimes the hard way) starting and building Signal Sciences as well as investing in over 50 start ups.

This is a 5 part series of suggestions to help founders identify ways they can sell less of their company while still building a great one.

Quick PSA: all these suggestions have tradeoffs associated with them. Decisions around this topic needs to be evaluated in the context of your specific company/situation and your profile for risk.

Part 1: Control dilution by taking less money

Sometimes less is more, and taking less money in your fundraising may lead to a bigger exit.

This one is kind of a “duh” concept but before starting a company myself, I mostly figured that the more money you raised the better it was for the company. You read headlines about fundraises and see massive numbers and associate the higher the number the better the company is doing. Sorta… Yes, it means investors were willing to put more money into a company to back them, but it also means more of the company was sold in the process.

The less money raised by selling equity in your company the more ownership you retain for yourself and employees (and even other investors).

Tradeoffs: if you raise more now, you could potentially use it to a) grow your company faster than you would have with less money in a way that improves the overall value equation b) gives you downside risk protection if you take longer than you expected to execute your business growth plans or c) want to hire executives to do more work and take a burden off your plate to have a better lifestyle. So, it’s always worth being very intentional about how much you raise.

• Side tip 1: investors think about each round of funding as the amount of money you need to build your company in the next 12-18 months (this number is more like 18-24 months given current economic conditions). I didn’t know this going in but it was VERY helpful to understand this to both set your own plans/expectations and theirs.
• Side tip 2: ask yourself how much more your company will be worth in 12-24 months and how much less of your company would you have to sell to raise the same amount of money you’re being offered now if you waited
• Side tip 3: you tend to dilute most at early stages of your company so that’s the time to be tighter with budgeting and planning if you’re dilution sensitive

Part 2

Part 3

Part 4

Part 5