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Share dilution occurs when a company issues new shares such as in a future round of investment, or perhaps on exercise of share options granted. The issuance of new shares will dilute the percentage of an existing shareholder’s interest in the company, although the number of shares they own remains the same.
How much do startup founders get diluted?
If you give away too much to attract specific people, you end up diluting yourself and your investors more than you need. Most startups reserve between 10 percent and 20 percent of equity for their option pools.
How does Founder dilution work?
Dilution is the decrease in equity ownership by existing shareholders that happens each time you issue new shares, like during a fundraising or when you create an option pool. In total, there are now 13,000 shares of company stock—and just like that, you now own only 77\% of your company (10,000/13,000) instead of 100\%.
What happens to founders shares when they leave a company?
Typically, founders shares are subject to a vesting schedule which gives the company the right to purchase the unvested shares back from the founder if they leave the company before their shares become fully vested. Vesting Schedule in Founders Shares
Can founders assign ownership to themselves?
Not only do you want to allocate ownership, but you want to re-allocate ownership if either partner fails to deliver. Investors routinely subject founder shares to vesting, but there is no rule that says that founders cannot, or should not, impose vesting on themselves.
The vesting schedule for founders shares should be agreed upon when the stock is first issued but may be decided at a later point, as a stipulation of the investment by an outside investor. There are a few reasons a founder might agree to have their shares fall under a vesting schedule during the inception of a company.
Does foundfounder 2 deserve more shares?
Founder 2 receives more shares but doesn’t really deserve them based on the agreed formula!That’s where a good partner agreement comes into play. Not only do you want to allocate ownership, but you want to re-allocate ownership if either partner fails to deliver.