This content was created by Tim Draper. This content was uploaded by Tim Draper. This is a YouTube interview titled "How to Cope if You Lose the Majority Ownership of Your Startup | CTO of Cloudera, Amr Awadallah" (posted 2015-06-16). The excerpt is a Q&A between an interviewer (SPEAKER A) and Amr Awadallah (CTO of Cloudera, SPEAKER B). The content explains dilution and how founders’ ownership percentages decline with funding rounds, and gives advice to prioritize building a much larger company (growing the overall value) rather than obsessing over percent ownership, with illustrative examples (e.g., 50% of $100M vs 5% of $1B).
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And with each of these funding rounds, the co-founders' ownership of the company gets lower and lower. Yes. And the stakes of these outside investors gets higher and higher. Yeah. So I'd be interested to know kind of from an emotional perspective how you kind of came to terms with that initially. I mean, it's kind of giving away pieces of your baby. Yeah. But also where to draw the line, because there must be from a smart business mindset a certain portion of the company that you and your co-founders need to make sure that you're in control of?
Yeah. So this is the topic of dilution. If you guys heard the word dilution before? So dilution is the percent ownership that you have of the company. When you're starting fresh and say you have— there's 2 founders in the company, the company is at ground zero, you didn't raise any money, each one of you would own 50% of that company. But as you start adding investors, your angle, your percentage ownership keeps going down and down and down and down because you're printing more shares, you're printing more shares and giving these shares out. So the angle keeps shrinking. However, what you need to keep in mind is every time you're raising more money, while the angle might be shrinking, the radius, meaning the share price, is increasing. So the area is actually going up, right? So the pie was this small at the beginning, now the pie is this big. So keep your eye on the prize, keep the eye on that prize of how can I grow the area I have as opposed to just the angle I have. Now ideally you want to grow both. Ideally if you are in a position to be like Mark Zuckerberg and own 50% of Facebook or I don't know how much he owns these days, try and do that. But that's not always possible. For me personally, my choice is with Cloudera has been and I recommend that should be your choice as well, especially when you're building your first company, is to build a big company. Obsess about building a big company. Don't obsess about my percent ownership. To give you an example, you can own 50% of a company that sells to Google for $100 million and you'll end up making what in this case? Help me out with the math here. $50 million. You'll end up making $50 million, which sounds very good. However, you can also own 5% of a company that goes public and becomes a $1 billion company, which also is equal to $50 million. In both cases there are $50 million, but in terms of your career, your reputation, your impact, The second case is way more important. VCs really will chase you if you were one of the people that created a $1 billion company. If you were one of the people who created a company that sold for $100 million, yeah, it's nice, but it's not as effective as the second scenario. So my advice to you, especially for your first startup, is to optimize for building a big company. And don't be overly concerned about what's my angle, my percent of that company. Focus more on how can I build a really, really big company. That would be my advice.
