Helping beginners through my experience feels AMAZING.
During a mentoring conversation yesterday,
I was reminded of what it was like to be new the entrepreneurship, and especially fundraising, game.
All the passion, drive, ambition.
But lacking the experience to make good, strategic decisions.
I'm grateful for the opportunity to help guide a fellow founder.
To help him avoid some of the (big) mistakes I've made in the past.
Here are 3 equity lessons I was reminded of yesterday on my call for anyone else who can benefit from this information:
1. Equity needs to be distributed strategically.
When you're a new startup and have 100% equity ownership within the founder(s), it is easy to want to pay consultants, vendors, partners, and everyone else with small pieces of equity.
But here's the thing...
Flooding your cap table with these new "owners" is a big ð©red flagð© to new investors.
If they're investing millions for 10%, why does the consultant who helped you with you pitch deck own 3%?!?!?
2. Don't overdilute yourself too early
I remember approaching my first investment round when I was a rookie.
I was so sure that after that pre-seed round, we would make a profitable company who will never need another investment again.
I was ready to offer 49% equity for the deal, because I was so eager.
***naive***
Companies take way more time and money than you think. ALWAYS.
Hold you to your precious equity for the future rounds that you will definitely need.
If your seed round will overdilute the founders' shares, that is a huge ð©red flagð© to you potential investors.
They want to see the founders with all the equity so they know you're motivated and in control of your own company. (And that you make good decision by the way.)
3. Remember equity for future employees
Set aside a 10% equity pool for future employees.
This will allow you to hire skills and experience above what you can afford to pay them with money.
â»ï¸ Repost to your network if you someone else might need to hear it and
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