Startup-Sutra-4.2: How to manage your equity?
A small recap- You have build your product, you have a small but meaning full team, who is chugging along with you and working as hard as you are, you have a co-founder which as strategically involved as you are and you have money from your elder brother and an angel investor. You have a valuation of 12 crores and a well distributed pie chart.
By the dilution which has happened in recent past, is it healthy?
It is good too and bad too. Good because you have a larger chunk of money to utilize and bad because you have lost certain amount share and hence control over the company. Now your employees, your co- founder, elder brother and the investor will have right to say in most of the decisions. But that’s alright as you are the boss and you will always have the last say till you own major chunk of your company. But make sure, you involve those people only who respect your work, your product and your plans rather than shoving their plans in your mind.
So, what now?
Step 5: Your company looks nice and you feel it’s time to get more investment and what a larger chunk this time. Since your product has shown nice revenue and looks like a product to bet upon for higher returns, you reach a venture capitalist and pitch your projections. He looks impressed, and is ready to invest some money. Now he values your company say, 20 crores and seeing a promising product, he is ready to invest 10 crores.
The math remains the same. His share becomes 33.33% i.e. 10,00,00,000/30,00,00,00=1/3 of the total and hence 33.33%.
So now the things look like:
|Now the picture looks like this|
Alright, so now this company is his too and that too with major chunk. What else can happen in this situation? You just got your series A funding, which we discussed in last chapter:Startup-Sutra-3: Where is the money?. You can go for other series of funding also. After all this either you run out of the money and since you have got all the funding you can possible get, your company is done. Or, you sell your company to a bigger company which has the same product base but much larger consumer base. Or, you go public i.e. IPO.