Every startup is different and whether you’re raising a Pre-Seed, Seed or Series A round and are looking to have an Angel-led or institutionally-led round, there is no standardised norm to determine how much equity a startup should be looking to offer when fundraising. Like the answer to most questions, it depends.
However, whilst every situation is unique, there are a few guiding principles that can help you gain a better idea of how much equity you should be giving away and whether you are asking for too little or too much.
Many believe that when starting out, a good starting place is to think about giving away somewhere between 10-20% of equity. This number is likely to get higher as a startup progresses through multiple funding rounds but a general rule for early stage rounds led by Angels e.g. Pre-Seed/Seed stage is to give away 10-20% of your company.
These figures represent the sort of returns an early investor will be looking for. As they are investing in a company at an early stage they are thus exposed to higher risk. As a result, they will want to receive higher potential reward, meaning a higher percentage of equity. This will also give them a more meaningful level of influence in key company decisions which can increase the chances of a return on their investment.
There are two main factors that determine how much equity you should expect to give away, namely, how much you want to raise and your company’s valuation.
Simply put, the more you want to raise, the more equity you will have to give. You can read more about determining how much you need to raise here. The higher valuation of your company, the greater your ability to retain equity.
How much you should raise will depend on a number of things. You can find out more about them here. There is also no set formula for determining the valuation of your company. The attractiveness of your startup will ultimately be the deciding factor, be it the industry it is in, the strength of your team and product or the interest it generates. All of these factors will impact the figure at which your company is valued and thus your ability to retain more equity.
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