Most VC-backed founders will own less than 50% of your company after your Series A 😬.. Here's why
The Hard Truth About Founder Dilution After Series A
Hey founders,
Welcome to another edition of My Unicorn Club - The Startup Newsletter - It’s a biweekly FREE newsletter written by those on this side of the table (VCs & Investors) for those on that side (Founders & Startup Enthusiasts).
The Ownership Breakdown
According to recent data from Carta (2024), the median ownership held by founders as a group after Series A is just:
37.2% for digital companies (SaaS, Fintech, Edtech)
30.3% for physical companies (Hardware, Biotech, Medical Devices)
This disparity stems primarily from capital intensity. Companies building tangible products typically require more funding to develop prototypes and scale manufacturing, resulting in earlier and deeper dilution
Does This Mean VCs Control Your Company?
Not immediately. When you combine founder equity with the employee option pool, the median ownership for founders + employees typically hovers just above 50% after Series A. But make no mistake – control often shifts to investors by Series B.
Several founders I've worked with in my 1:1 brainstorming sessions express shock at this reality. Yet understanding dilution trajectories early helps you plan strategically for future rounds. One founder recently told me: "That 35-minute call saved me from making critical cap table mistakes that would have cost me control prematurely."
Why Dilution Has Accelerated
The fundraising landscape has evolved dramatically. A decade ago, Series A rounds were $2-3 million. Today, they commonly reach $10+ million according to PitchBook data. Additionally, the rise of pre-seed rounds means many companies have already experienced significant dilution before even reaching their A round.
For founders navigating this landscape, knowing which investors have founder-friendly terms becomes crucial. My curated database of 150+ investors includes detailed notes on historical dilution requirements and governance terms – information that has helped dozens of founders target VCs aligned with their ownership goals.
Managing Your Cap Table
The key takeaway isn't that dilution is bad – it's necessary for growth. Rather, it's that understanding and planning for dilution from day one is essential.
Consider:
Starting with more co-founders means each individual's stake becomes smaller and faster
Employee option pools typically require 10-15% set aside at Series A
Strategic pre-A financing can help maximize valuation before major dilution events
What's Next?
Dilution is inevitable, but surrendering control doesn't have to be. The founders who navigate this best are those who approach fundraising with eyes wide open and a strategic plan for maintaining meaningful ownership.
Next week, I'll break down term sheet provisions that can protect founder interests even as ownership percentages decline.
P.S. I'm hosting virtual office hours next Thursday for subscribers. Reply with "OFFICE HOURS" if you'd like to join.
Until next time, signing off
Sayanee Bhowmik
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