alt Hacker NewsThe problem is with the first step. If the angels owns 1%, and the founders own the other 99%. When taking more money, it should be the founders selling a portion of the 99%, not diluting the angles percentage.
The stake should remain the same, but double in value. That's the risk of early investment being paid out.
I'm really surprised it doesn't work that way.
Replies
RainyDayTmrw • 05/04/2025
The edit window has passed, so I'll add a new reply.
The other thing to keep in mind is that institutional investors will generally insist that founders earn out their stake via vesting over, say, 4 years. Then, the founders' stake, despite being earmarked for them, aren't officially theirs yet.
The actual transaction is framed in terms of generating more shares in the company, such that existing shares represent an ever smaller piece of the total pool. What you're suggesting would be the founders selling a fraction of their shares to the new investors, while keeping total shares the same. Institutional investors are highly opposed to that, for a variety of reasons, including because they want founders to remain bought in to the company. (Some institutional investors will allow founders to "take some money off the table" to a small extent, but that's the exception and not the norm, and it's viewed as a favor to the founders. More cynically, institutional investors don't want founders to have financial independence before the company fully succeeds.)