A short YouTube discussion (Neal Bloom and others) about why founder equity matters in early-stage investing. Speakers identify low founder ownership (e.g., collective founders <20% at seed) as a major red flag, explaining the incentive problem: under-ownership can force investors to either re-grant equity (diluting themselves) or replace founders, both undesirable outcomes.
Who wants some juicy stories without saying the company's names? There's gotta be some juicy stories. Come on.
And I can turn this into a story. But to follow on, on something that, on cap tables that we look for, I would say.
At the early stage.
At a seed round, seeing the collective founders already having like less than 20% of the company, meaning they've raised, you know, a bunch of, bunch of notes, bunch of safes, and they already have, and starting to get into single digit, big red flags for me in that regard. Is that something you're looking forward to, ownership of the founders?
Absolutely, absolutely. And it's counterintuitive too, right? Because I think one, one thing you could say is, oh, if the founders have less, I as the investor have more. But the issue is the only way the founders are going to work hard and give you their full effort is if they're going to get something at the end. And if they're already down to 20% coming into the very, very first round, you, you're going to have to either give them more equity at some point and create dilution for yourself or find a new replacement. And you know, as I alluded to earlier, that is a nightmare. So you need to make sure that the founders have enough to get them to the finish line to be sufficiently incentivized and to align them with the investors. For the founders to make money, the investors have to at least get their capital back.
