ANTI-DILUTION PRACTICES - Deepstash

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ANTI-DILUTION PRACTICES

This apparent horror story leads many founders to take staunch anti-dilution measures. But dilution serves a purpose: to attract skilled people and resources to your startup.

Whether it’s incentivizing a respected VC with a sizeable ownership stake, or luring top talent with an options pool, offering equity is beneficial to your startup, and attempting to hold on to as much equity as possible could limit your growth. Taken to extreme, anti-dilution practices could leave you as the majority shareholder of a worthless company.

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Most founders start out owning their company.

But to grow as quickly as possible, you’ll need investment, and to secure the capital you’ll need, your investors will want to own a part of your company.

The faster you grow, the greater your burn rate becomes, and the more capital you’ll...

The only real valuation of a company is whatever someone is willing to pay for it, and a VC will pay huge amounts if they think you’ll be worth a whole lot more in the future.

Investment decisions can become incredibly complicated, and in the case of successful startups, minute changes to ownership stakes can equate to millions of dollars. Thankfully, there’s a simple rule of thumb we can use to work out whether or not we think an investment opportunity is worthwhile.

Let’s assume both you and your investor have valued your early-stage startup at $100,000. Your investor is willing to contribute $25,000 to fund the growth of your company. How much equity should they get?

  • If that $100,000 is a pre-money valuation, the company is valued at $100,000 bef...

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What Is Bootstrapping?

  • Bootstrapping is founding and running a company using only personal finances or operating revenue.
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Initial Public Offering (IPO)

An Initial Public Offering (IPO) is the process where a private company becomes listed on a public stock exchange and offers new shares.

Prior to an IPO, the company is private and shares are usually held by the founder, early employees, VC firms, and angel...

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Equity has different meanings depending on the context. Shareholder's equity is the most common type of equity - it represents the amount of money that a company's shareholders will get if all of the assets were liquidated and all the debt was paid off.

Equity can be found...

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