Kevin "KD" DorseyFounder of Sales Leadership Accelerator - The #1 Sales Leadership Coaching Program to Transform your Org and your Life

Debunking Venture Capital for Founders and Startups with Ankur Ahuja

Name: Debunking Venture Capital for Founders and Startups with Ankur Ahuja
Uploaded: 2022-11-03T04:32:20+00:00
Duration: 34 s
Channel: Kevin "KD" Dorsey
Description: Short transcript excerpt from a conversation explaining basic venture-capital cap table mechanics: how initial ownership (example: $1M at $5M pre-money =…

3 Nov 2022 · 1 min

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Short transcript excerpt from a conversation explaining basic venture-capital cap table mechanics: how initial ownership (example: $1M at $5M pre-money = 20%) is diluted by subsequent fundraising, and how final payout depends on ownership proportion after all dilution. The speakers illustrate dilution with numeric example showing early 20% shrinking as the company raises more capital (e.g., raising an additional $100M makes the original $1M stake a smaller fraction).

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So at the end of the day, everyone gets paid. That's on the cap table, right? And what you get paid is basically at the end, after you get diluted, it's what your proportion of the company that you own is. So you gave an example that we invest a million dollars at a $5 million valuation, so we own 20% of the company. But that's very early on. And as you take new money on, you get diluted. And so at the end you get some sort of calculation that this is what your ownership was after all your dilution. After all this, other investors came in and, and pump money, right? Because your denominator is getting larger. So will you break that.
Down real quick for people so they understand like the 20% at the beginning why it's no longer 20% 10 years later?
Because 10 years later, if the company's raised an additional a hundred million dollars, now there's a hundred. It's collectively the company raised 120 million bucks. And my 1 million was 1 over 120, right. And so that's what my proportion would be of that billion dollar payout.