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Venture Capital - Friday, December 23, 2005

Hair On The Deal

VC Will Price of Hummer Winblad provides some insight into why VCs dislike companies with a past. Startups with too many founders or too many common holders (angels) are a pain in the ass. An angel comments that he doesn't like Price's attitude, but we can't blame Price. Too many cooks in the kitchen is generally a bad idea.

Price's math is something that every founder should study:

"A typical Series A sees the following equity ownership distribution: VC syndicate 50%, option pool 20%, founders 30%. Each subsequent financing will see founders diluted by roughly 20% per financing, such that after three rounds the founder shares represent 30%*.8^2, or 19.2% of the company. The per founder math is very simple - founder shares/# of founders. It almost seems redundant to state that too many founders can greatly impact the downstream economics of the founders, however, I have seen very smart, experienced founding teams launch with 5-6 founders and come to realize later that the per founder ownership in the entity creates real incentive problems."

Read - Cap Table Hygiene