Diluted Founders

Definition of 'Diluted Founders'


A slang term often used by venture capitalists to describe the process by which the founders of a startup gradually lose ownership of the company they founded. As a startup that is using venture capital for funding progresses through multiple rounds of financing, the venture capitalists providing the financing will often want more and more ownership of the company.

In other words, the founders dilute their ownership in the company in exchange for capital to grow their business.

Investopedia explains 'Diluted Founders'


What percentage of the company should a founder hold onto, ideally, after the venture capitalists take their piece of the pie? There is no gold standard, but generally anything between (or above) 15-25% ownership for the founders is considered a success.

It is important to note that the trade of ownership for capital is beneficial to both venture capitalist and founder. Diluted ownership of a $500 million company is a lot more valuable than sole ownership of a $10 million company.



comments powered by Disqus
Hot Definitions
  1. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying a company's shares outstanding by the current market price of one share. The investment community uses this figure to determine a company's size, as opposed to sales or total asset figures.
  2. Oil Reserves

    An estimate of the amount of crude oil located in a particular economic region. Oil reserves must have the potential of being extracted under current technological constraints. For example, if oil pools are located at unattainable depths, they would not be considered part of the nation's reserves.
  3. Joint Venture - JV

    A business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity. In a joint venture (JV), each of the participants is responsible for profits, losses and costs associated with it.
  4. Aggregate Risk

    The exposure of a bank, financial institution, or any type of major investor to foreign exchange contracts - both spot and forward - from a single counterparty or client. Aggregate risk in forex may also be defined as the total exposure of an entity to changes or fluctuations in currency rates.
  5. Organic Growth

    The growth rate that a company can achieve by increasing output and enhancing sales. This excludes any profits or growth acquired from takeovers, acquisitions or mergers. Takeovers, acquisitions and mergers do not bring about profits generated within the company, and are therefore not considered organic.
  6. Family Limited Partnership - FLP

    A type of partnership designed to centralize family business or investment accounts. FLPs pool together a family's assets into one single family-owned business partnership that family members own shares of. FLPs are frequently used as an estate tax minimization strategy, as shares in the FLP can be transferred between generations, at lower taxation rates than would be applied to the partnership's holdings.
Trading Center