Diluted Founders

AAA

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.



RELATED TERMS
  1. Equity Financing

    The act of raising money for company activities by selling common ...
  2. Capital Pool Company (TSX Venture)

    A new, fledgling company trading on Canada's TSX Venture exchange ...
  3. "A" Round Financing

    The first major round of business financing by private equity ...
  4. Wash-Out Round

    A common round of financing to owners of small companies that ...
  5. Seed Capital

    The initial capital used to start a business. Seed capital often ...
  6. Venture Capitalist

    An investor who either provides capital to startup ventures or ...
RELATED FAQS
  1. What is the relationship between research and development and innovation?

    Although it's possible to achieve innovation without research and development and it's possible to conduct research and development ... Read Full Answer >>
  2. What are the pros and cons of downround financing?

    Down round financing is often reflected in very negative terminology. In some cases, it can be very bad for existing shareholders. ... Read Full Answer >>
  3. What type of companies use downround financing?

    Down round financing involves selling stock to new investors at a lower price than the investors paid. Shares for the company ... Read Full Answer >>
  4. What are the pros and cons of holding a non-controlling interest in a company?

    Most investors hold a non-controlling interest – also known as a minority interest – of the companies in which they own shares. ... Read Full Answer >>
  5. How do changes in capital stock illustrate the overall health of a company?

    Changes in capital stock normally illustrate that the overall health of a company is strong, and that it is seeking to raise ... Read Full Answer >>
  6. What type of funding options are available to a private company?

    Similar to public companies, private companies also need funding for various reasons. A business typically needs the greatest ... Read Full Answer >>
Related Articles
  1. Retirement

    IPO Basics Tutorial

    What's an IPO, and how did everybody get so rich off them during the dotcom boom? We give you the scoop.
  2. Professionals

    Top Strategies to Attract Elite Clients

    Here's how to think outside of the box when it comes to attracting a high-net-worth client base.
  3. Investing Basics

    Explaining the Volcker Rule

    The Volcker Rule prevents commercial banks from engaging in high-risk, speculative trading for their own accounts.
  4. Economics

    What are Deliverables?

    Deliverables is a project management term describing an object or function that must be provided or completed by a certain due date.
  5. Economics

    What Does Capital Intensive Mean?

    Capital intensive refers to a business or industry that requires a substantial amount of money or financial resources to engage in its specific business.
  6. Personal Finance

    5 Assets Only The Ultra Rich Can Afford

    Yacht? Private jet? Not that unusual. If you’re rolling in the big bucks, you can buy something much more interesting.
  7. Entrepreneurship

    Three Steps Elon Musk Took To Become Successful

    What steps did Elon Musk take to become the person he is today? We explore three steps that are accessible to all of us.
  8. Entrepreneurship

    Who Invented Apps For Smart Phones?

    Mobile devices have radically changed how we communicate, conduct business, consume entertainment, and manage our lives, all thanks to apps.
  9. Entrepreneurship

    The Story Behind Tesla's Success

    Tesla’s cars have been a hit not only car buyers, but also catapulted the company into the spotlight as one of the few successful independent automakers.
  10. Entrepreneurship

    Top Spots to Wine & Dine Clients in San Francisco

    From urban hangouts populated with techies to seafood grills dating back to the Gold Rush, here are San Francisco's best spots to entertain clients.

You May Also Like

Hot Definitions
  1. Inbound Cash Flow

    Any currency that a company or individual receives through conducting a transaction with another party. Inbound cash flow ...
  2. Social Security

    A United States federal program of social insurance and benefits developed in 1935. The Social Security program's benefits ...
  3. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  4. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  5. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  6. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!