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Comment by CPLX | Hacker News Reader

This analysis is dubious. The main problem I see just eyeballing the numbers is that the ratio of the funds raised in each round to the post-money valuation averages around 1:6 to 1:8. Or said another way, the investors in each of the rounds are buying around 12%-18% of the company during the round.

I'm not an up to the minute expert so maybe this is the new normal, but in my experience, those ratios are usually more like 1:3 or 1:4. It's pretty normal for VC's to own 30-35% of the company after a Series A.

Very hot and high growth companies (Facebook, famously) have been able to sell off single digit percentages of the company with incredibly high valuation increases between rounds. But those results may not be typical.

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His numbers are wrong (and he admits as much), but they're really just illustrative anyway. The entire point he's making is that if you're growing quickly, dilution isn't a big deal.

And the VC equity split usually changes by round and market conditions: A is usually 30-35%, B is usually 15-20%, C+ are usually <=10% (this is for a typical startup; Cloudera is a unicorn so the rules are out the window). The general rule of thumb is that founders drop below 50% sometime around the C round. Most VCs are hesitant to dilute founder equity too early because it can hurt recruiting and make it harder to fund later rounds.

>Very hot and high growth companies (Facebook, famously) have been able to sell off single digit percentages of the company with incredibly high valuation increases between rounds.

well, one can see how selling only single digits (at sufficient valuations to fund the company's progress) may in turn have potential to make the company very successful - by preserving founder(s)'s control and thus allowing the founder(s) to drive the company further. Basically taking control out of founders' hands VC risk ending up with bigger share of less successful company.

The general premise still holds though - As long as the pre-money in a round exceeds the post-money in the prior one, the owners are worth more. The analysis is over-simplified, but it still explains the situation clearly.

As for how much is given away... I think Cloudera is a special company. Most of the unicorns are. The same strength ("We can wait on the money") that gets them to a billion is also what allows them to get away with less dilution.

your analysis is flawed. it really depends on the valuation at which each round is raised.

Of course. But it's post in one versus pre in the following. If the post-money valuation grows from 50 to 60 million after taking in 20mm in new money, the founders get diluted. If it grows from 50 to 60 with 5mm in new money, they don't.

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