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Pie Chart Shrapnel, originally uploaded by urbanraven
Rob May, who has created quite a following at Businesspundit (and is something of a blog mentor), linked to my founder’s stake post yesterday afternoon with the following comment:
Matt Winn ... Continue reading »
Rob May, who has created quite a following at Businesspundit (and is something of a blog mentor), linked to my founder’s stake post yesterday afternoon with the following comment:
Matt Winn ... Continue reading »
2 years ago
I don't know what most entrepreneurs think, but for me, the 7-8% is not an issue of control. It's nearly impossible to take on decent amounts of investment capital without giving up control. I see it as a valuation issue. The longer you can wait to take VC money, the higher the value of your company at that time, and thus the larger stake you get for a given level of investment.
Your comment about boostrapped vs. VC-backed stakes is an interesting one, and I bet the data is a pretty funky curve with some surprising discontinuities. Now if only someone has that data to put on Swivel...
2 years ago
Thanks for commenting, and for the link! Experienced entrepreneurs, it seems, are much more likely to take institutional capital "day 1" because they're shooting to build another hit and see capital raises as a necessary but distracting part of the business and so want deep pockets to start. It may behoove first-timers to "get big cheap," as David Cowan puts it, in order to maintain a sizeable stake in the company and accomodate for the inexperience, but a 7-8% equity stake in a venture-backed business should represent big bucks if the company is even moderately successful. My sense is that if an entrepreneur finds a fit with a decent firm, she won't be "thrown in with the sharks." Everyone wants a big payday and smart investors will ensure that the key players are all properly rewarded for success. If they don't, the likelihood of that success will decline dramatically. The "invisible hand" is a powerful tool.
Best,
Matt