\n<\/p>\n
Over the last<\/span> couple of months I\u2019ve spoken to a number of early-stage investors \u2014 both angels and VCs \u2014 who seem to be proud of having been able to take 25-30% of a startup\u2019s equity in an early-stage funding round. In one case, an angel investor patted themselves on the back for \u201cmanaging to convince the founder to give them a 41% stake.\u201d I was reminded of that several times as I was in Oslo this week, speaking with a number of players across the startup ecosystem.<\/p>\n TL;DR:\u00a0If you are reading the above and you wish that you, too, could command that level of ownership stakes in a startup, I\u2019ve got some bad news for you: you are being short-sighted, and you are hindering the startup, the founders and your own chances of finding success.<\/p>\n Founding a startup is hard. That means investors should help, not set up a situation in which the founders of a startup are disincentivized and demoralized, and won\u2019t be appropriately compensated for their hard work in the case of an exit. And that\u2019s precisely what will happen if investors take too much of a startup, too early.<\/p>\n To explain why investors patting themselves on the back in early rounds are slipping a poison pill into the startups\u2019 cap tables, let\u2019s take a look at what would happen to a company that dilutes by 30% in every funding round.<\/p>\n Why \u2018poison pill?\u2019 Because diluting founders too much virtually guarantees that the company won\u2019t give a significant return on investment; if it needs to raise additional funding further down the line, future investors will likely balk at how little ownership is left for the founders.<\/p>\n<\/p><\/div>\n