What’s the minimum amount of equity a founder should have in his company?
The answer to this company changes with the stage of the company and whether it’s a VC/PE fundable business model or not.
However, to make things simple, let’s start off with how much do founders hold in their VC funded startups at IPO or late stage.
👉🏼 Jeff Bezos holds ~11% of Amazon
👉🏼 Mark Zuckerberg has ~13% of Meta
👉🏼 Vijay Shekhar Sharma holds ~14.5% of Paytm
👉🏼 Ritesh Agarwal holds ~7% of Oyo
👉🏼 Deepinder Goyal holds ~5.5% of Zomato
👉🏼 Falguni Nayar holds ~52% of Nykaa
👉🏼 The 5 Founders of Delhivery collectively own ~6-7%
The above shows a huge range varying from 5% to 50%, but removing the outliers, you’ll see the founders collectively attempt to preserve about 15% of the company at IPO.
Let’s work backwards from there…
👉🏼 The average age for a company to reach IPO in 10-12 years. Imagine your target is 10 years.
👉🏼 Now, each time you raise a round of capital to dilute equity, you make sure it lasts you 24 months of runway - this could be to fund operations initially or for capex expansion
👉🏼 Imagien you bootstrap the company for the first 2 years, and then have 8 years to IPO, that is, with 24 months of runway being funded in each round, 4 rounds of funding…
👉🏼 Startups start off diluting high in earlier rounds due to higher risk, and then dilution at each stage mostly reduces. But, on an average, startups end up diluting close to 17.5% in each fundraising round that gives them enough capital for 2 years… that means roughly 70% of your company given away in 4 rounds
👉🏼 You’ll have to set aside 15% easily for ESOPs, Advisors and other key hires in the management
👉🏼 So, 100% - (17.5% * 4%) - 15% = 85% equity given away in 10 years… so 15% left at IPO as target ownership
👉🏼 More the number of Founders, this target ownership gets split among them all
This is not a cookie cutter solution, but it gives you a method to the madness when valuations come out of thin air
#casarthakahuja #startups #equity #finance
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Comments (14)
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Does all this information falls in the category of money market?
Great information 🔥
Nice 👍🏻
https://www.instagram.com/reel/CuEqElitGd2/?igshid=MzRlODBiNWFlZA==
Good point, and don't scam people in Instagram seeking crypto for investment do that in Delhi bro, in Mumbai we only slap some hustlers with bald personality and a chutiya voice
@_angeldeco 😢
Elon musk ?? Owns ..
My father is a valuation specialist and he agrees with your post
Tough for me to understand par kuch acha hee bola hoga👍😭
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Editor: how chikna do you want me to make you look?
This guy: yes
Unique piece of information...👏
Amazing knowledge