Founder Dilution Survey

Sim Simeonov, a partner at Polaris Venture Partners, sent me (along with a bunch of his closest friends) the following email this morning.

“Founders often ask about the dilution they are likely to experience through exit. There are rules of thumb but there is no good data about what happens to common stock (at least, I haven’t been able to find such data outside of S1 filings which are a very biased sample). So, I built a little survey to collect anonymous data from entrepreneurs. I’ll crunch the numbers and share the stats with everyone. I’d appreciate your help in spreading the word around so that we get enough data.”

Sim is doing a short survey to collect this info.  Help him become statistically significant by taking the survey – it looks like it’ll take less than two minutes.  He promises to post the results on his blog.

  • Steve Zweig

    As the founder of a VC backed biomedical company (about 10 years ago), one of the things that I found most disturbing was that during financing, some VCs would look at my percent ownership and use that to try to set terms. The argument was that I owned "too much" so the company must therefore be an early stage company, and be valued accordingly.

    Unfortunately this practice acts as a disincentive to good management. In my case, I "owned too much" because I had been very careful with cash, worked obsessively to maximize value generation, and I had supplemented Angel money with funding from SBIR grants that I had written.

    Fortunately, a fair number of VC's don't follow this rule (I'm sure Brad doesn't). In my case I was able to avoid them. However enough VCs do think like this that it is something that founders need to keep in mind. Sometimes these percent ownership tables can become a self-fulfilling prophecy.

    • Steve – I’ve observed this phenomenon also.  It’s a disingenuous negotiating position on the part of the VC.  If anything, a good VC should want the founders to retain as much of the company as they can!  The market sets the price, so hopefully when an entrepreneur runs into a VC that thinks this way, they can find another VC that is more considerate of the effort an entrepreneur has put into the company prior to the financing.

  • oeh

    Sim over at 640-822 exam Polaris Ventures is looking for 70-642 exam founders to help him quantify dilution over the life of a company (financings, stock 70-291 exam option refreshes, etc) and the impact of fund raising on the ultimate stakes founders enjoy in their companies.70-647 exam

    He will be sharing his findings on his blog.

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