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.

BREAKING DOWN '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. Adventure Capitalist

    1. Another word for "venture capitalist", or someone who invests ...
  2. Venture Capitalist

    An investor who either provides capital to startup ventures or ...
  3. Venture Capital

    Money provided by investors to startup firms and small businesses ...
  4. Drive-By Deal

    Slang referring to a deal in which a venture capitalist invests ...
  5. Venture Capital Funds

    An investment fund that manages money from investors seeking ...
  6. Capitalization Table

    A spreadsheet or table that shows ownership stakes in a company, ...
Related Articles
  1. Managing Wealth

    Who are Venture Capitalists?

    Venture capital investment firms can provide the seed money for high-risk, start-up companies. People called venture capitalists run these firms, and make the investment decisions.
  2. Managing Wealth

    A Day in the Life of a Venture Capitalist

    Learn more about the job description of a venture capitalist and discover what a typical day in the life of this professional might look like.
  3. Managing Wealth

    Startups Destroyed By Venture Capitalists

    While the title may sound counter-intuitive, venture capitalists have been responsible for causing or accelerating the downfall of their startups. Here are a couple of examples.
  4. Managing Wealth

    A Look into the Exciting World of Venture Capital

    We look into the world of venture capital, where deep-pocketed investors gamble on funding the next big startup (or the next big flop).
  5. Managing Wealth

    Startups That Got Screwed by Venture Capital

    Venture capital support can make or break a startup. But before taking the cash, founders should make sure they are not making a deal with the devil.
  6. Managing Wealth

    Does Your Startup Need Venture Capital Money?

    Venture capital funding provides capital to grow a business. However, entrepreneurs will also lose some control over business decisions.
  7. Entrepreneurship & Small Business

    How Venture Capital Will Change in 2016

    Venture capitalists face a tech bubble on the horizon, along with an influx of new non-traditional investors via Wall Street and crowdfunding platforms.
  8. Managing Wealth

    The Risk And Rewards Of Investing In Startups (GOOG)

    Investing in startups is a very risky business but can reward investors greatly if and when they do pay off.
  9. Managing Wealth

    Fed Raising Rates Affects Startup Funding

    With interest rates having nowhere else to go but up, the Fed’s impending interest rate raise will likely begin to reverse the flow of startup funding.
  10. Managing Wealth

    Top 4 Venture Capital Investors and Firms (AAPL, YHOO)

    Understand what it is that venture capital firms do, the purpose they serve for new businesses and discover some of the top-ranked venture capitalists.
RELATED FAQS
  1. How do venture capitalist investors view sustainable growth in a startup?

    Discover how venture capital investors view sustainable growth in a startup. Venture capitalists look to identify startups ... Read Answer >>
  2. What are some of the disadvantages to taking venture capital?

    Learn how financing a business through venture capital can be a viable source of funding for small businesses but know caveats ... Read Answer >>
  3. How is venture capital different from other kinds of equity financing?

    Learn how venture capital equity financing differs from other funding options and what companies need to be aware of prior ... Read Answer >>
  4. How is venture capital regulated by the government?

    Learn about some of the ways in which the U.S. government and the Securities and Exchange Commission regulate venture capital. Read Answer >>
  5. Which industries can benefit the most from venture capital?

    Read about the kinds of industries that tend to receive the most venture capital funding and why private equity investors ... Read Answer >>
  6. What are the different equity financing options available to companies in the United ...

    Learn what equity financing options are available to small, mid-sized and large companies within the United States and understand ... Read Answer >>
Hot Definitions
  1. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  2. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  3. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
  4. Russell 3000 Index

    A market capitalization weighted equity index maintained by the Russell Investment Group that seeks to be a benchmark of ...
  5. Enterprise Value (EV)

    A measure of a company's value, often used as an alternative to straightforward market capitalization. Enterprise value is ...
  6. Security

    A financial instrument that represents an ownership position in a publicly-traded corporation (stock), a creditor relationship ...
Trading Center