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.

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