I want more control. What can I do to give more equity to founders?

You have looked over the cap table and believe that founders deserve a larger percent of the company than the cap table indicates. We will present below all things you could do that will enable you to have a larger percentage. However, the percent of the company that you own is really not important! Let's say you had a choice of owning 60% of a company worth $500,000 or 30% of a company worth $2,000,000. Which would you prefer? We think the answer is clear!

An even better example is one that you may be facing very soon if you are considering selling any of your company to outside investors. Let's say the only way to convince those outside investors to invest is to sell them 60% of the company. At this moment, you own 100% of your company, but the company is worth nothing (or pretty close to nothing). The only reason you are taking investments is because you need that money in order to make the company worth something, let's say, $5,000,000. Which would you prefer: to own 100% of a company worth nothing, or 40% of a company worth $5,000,000? You decide.

If you still want to know how founders can increase their share, here are the ways to do it:

  1. Founders can participate as individual investors in the company. Note that this will not show founders (as a group) having a larger percent ownership on the cap table, but founders as individuals will know they own a larger percentage of the company. There are two other good reasons for founders to invest in every round: (a) when a potential investor asks if you have skin in the game, you can respond affirmatively (answering that you have given unselfishly of your time unfortunately will not be accepted in an equivalent manner), and (b) when a potential investor asks if any funds are yet committed to the round, you can once again answer affirmatively.

  2. Founders can serve as employees in the company, and thus earn options just like other employees. Note that not all founders make good employees, let alone officers. As in the previous case, this will not show founders (as a group) having a larger percentage ownership in the cap table, but founders as individuals will know that they (as individuals) own a larger percentage of the company wearing multiple hats.

  3. If you have not already completed the founders' round, sell more shares at the same total investment amount at a lower price/share. This will increase percent ownership of founders.

  4. Increase price per share for all investor rounds in your planning assumptions. By increasing price per share on all investment rounds except the founders' shares, you will in effect increase percent ownership of founders and employees and decrease percent ownership of investors, making it more difficult to attract investments.

Related Questions:

How do I see the cap table?

How do I determine if my cap table is reasonable?

Can founders invest in the company after the founder's round??

How do I add/edit founders round?

How do I add/edit investment rounds?

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