How much do Founders still own when they exit?
In our tech world there are plenty of views on how much founders should keep hold of at each round. Striking the right balance between keeping hold of enough of your stock to keep you motivated, and giving away enough to get investors interested in the first place, is the perennial issue for start-ups.
At the end of the day, the most important figure is how much founders still own when their baby is either sold or floated. That's the money shot, literally.
A new study by Blossom Street Ventures reveals the median level of founder ownership at exit.
Have a look at the list and you see a few founders, like Zuckerberg, hold out to retain a far higher amount of their company than their peers.
Not surprisingly what these guys have in common is enormous early success for the company, on the whole at least. Having an enormous number of active users gives founders much more leverage when dealing with VCs.
So if you are starting your own company, here's a top tip: get as much success under your belt first before reaching out for external investment.
Here are the main points of the study (verbatim: I'm too lazy to write them all out again, plus it's a Monday morning).
Upon exit, the median level of founder ownership across the 79 companies was 11%. The average was slightly higher at 17%, due to the very heavy ownership stakes of guys like Nick Woodman at GoPro (43%), Jay Hoag at Netflix (43%), Pierre Omidyar at eBay (42%), and Sergey Brin & Larry Page at Google (51% combined). While you want to own massive stakes like the guys above, so long as you’re at least at 11% upon exit, you’re in line with your peers.
The median level of VC ownership upon exit was 62% and the average was 56%. In other words, to get to the IPO level, generally it takes a significant amount of outside investment so nurturing and maintaining large investor relationships is important.
Both the median and averages of the founders and VC sum to 73% (11+62 and 17+56). That means smaller investors and employees owned 27% of these businesses at IPO. The lesson there is that small investors will be as important to your success as large investors, especially early on. Additionally, option pools are going to need to be set up along the way and sharing equity with your key employees will be critical to growing a large, IPO-worthy business.