Introduction
Raising funds as a startup founder is both exciting and daunting. The capital you receive helps you grow the business, but it comes at the cost of giving up equity and ownership. That’s why understanding exactly how much equity to give up in each funding round is more important than most founders realize. It’s not only about how much money you raise; it’s about how much of your company you still own as it continues to grow.
And the best time to get this right is at the start. How much equity you should give up in early rounds like seed and pre-seed can shape your entire fundraising journey. Investors, whether they are angel investors or venture capitalists (link to first blog once published), might ask for 20%, 30%, or even more of your company.
However, every share you give away means losing some control and potentially a large chunk of future profits. This is exactly what Razorround helps founders with — raising funds while protecting ownership from seed to Series A.
Therefore, if you're a new founder wondering how much equity to give up in each funding round, you're in the right place. This guide will walk you through how much equity to give up at each stage, so you can make confident and informed decisions from the very beginning.
Different Funding Rounds and Equity Share
Instead of jumping straight into the numbers, let’s start by breaking down the different funding rounds. The amount of equity you give up during each round depends heavily on when you're raising, how much funding you need, and the valuation you're working with.
What is a Pre-Seed Funding Round?
"Pre-seed" is a relatively recent addition to the startup world. Having emerged within the past decade, there is no universally agreed-upon definition. However, Carta defines it as any funding round raised before the seed stage and is typically raised before any priced rounds, i.e., Series A and B. Pre-seed rounds are commonly structured as SAFE (Simple Agreement for Future Equity) or convertible notes since companies at the pre-seed stage are in their earliest phases, they often lack a formal valuation.
Moreover, this stage of funding helps founders develop a product and lay the foundation of the company. For example, it is used for conducting market research, identifying customers, testing a Minimum Viable Product (MVP), and hiring a team. Pre-seed funding is typically sourced from:
- Family and friends
- Angel investors
- Angel syndicates
- Crowdfunding
Typical Characteristics of Pre-Seed Rounds:
- Funding Amount: Up to €200,000
- Equity Shared: SAFEs or convertible notes
- Purpose: Testing the idea, developing an MVP, and laying the foundation for the company
- Sources of Funding: Friends and family, angel investors, accelerators, syndicates, pre-seed and seed-stage VC firms, or bootstrapping
Equity Share During the Pre-Seed Stage
Now, let's address an important question: how much equity should you give away during the pre-seed stage? So, how much equity should you give up during the pre-seed stage? There’s no one-size-fits-all answer. It depends on your funding needs, the strength of your story, and the kind of investors you bring in.
It might seem like raising capital is always a win. But in reality, it can be a double-edged sword. On one hand, you need the funding to grow your business, build your team, and scale operations. On the other hand, each round of funding means giving away a piece of your ownership.
Let’s understand it with a simple example:
- Imagine you’re a sole founder and own 100% of your company. That means you hold all 10,000 shares of the company.
- Now, suppose you have a co-founder; together, you each own 50%, splitting the shares evenly (5,000 each).
So far, so good. But then you need outside funding. Let’s say you raise your first round and issue 2,000 shares to a new investor. Suddenly, the total number of shares increases to 12,000.
- If you’re a sole founder, your ownership shrinks to 83% (10,000/12,000).
- If you’re one of two co-founders, each of you now owns 41.7% (5,000/12,000).
This is called equity dilution. In simple words, the percentage of your ownership decreases as you issue new shares, even if the total value of your shares increases because the company is worth more.
Even if your exact ownership isn’t clear at this stage, the equity you give away now will still affect your future ownership. That’s why you shouldn’t overlook how much equity you give up during the pre-seed round, usually something around 10–15%.
Since valuations are often unclear this early on, most founders raise money using SAFEs or convertible notes instead of priced shares. In short, you typically give away around 10–15% equity (converted later) at this stage.
Pro tip: SAFEs delay valuation talks until a later round. So it's best to consider them for early-stage startups.
What is a Seed Funding Round?
A seed round is one of the first funding stages for a company, raised to help the business grow and move to the next stage of development. Companies typically raise a seed round when they have an actual product demo and are ready to scale it further. Seed rounds can be either priced (where shares are sold at a set valuation) or convertible (such as SAFEs or notes, which later convert into stock). Choosing between a SAFE vs convertible depends on what works best for your stage and goals.
They are smaller than major rounds like Series A or B, typically ranging from €500k to €5 million. According to statistics from Carta, the median seed funding amount in early 2023 was €3.1 million. The primary purposes of a seed round include product development, hiring, marketing, and covering other related costs.
Typical Characteristics of Seed Rounds:
- Funding Amount: €450k to €4.5M
- Equity Share: SAFEs, convertible notes, or preferred stock
- Purpose: Gaining early traction, starting to sell, and scaling the business
- Sources of Funding: All pre-seed investors, plus super angels and VCs specializing in seed-stage funding
Equity Share During the Seed Round
By the seed stage, you probably have a prototype or MVP. You’re now raising money to develop your product and start gaining traction. Investors often ask for an employee stock option pool at this point. If you’ve raised a round before, and the pool is created now, only the founders are diluted. That’s why planning ahead is important. Aim to keep give-away in the 10–15% range when possible, as it impacts ownership dilution.
In short, you typically give away around 10–25% equity during the seed round.
What Is a Series-A – A Round?
This is the next round of funding following the seed rounds. It is considered the first round raised based on the company’s valuation and in exchange for fixed equity. This round is raised to refine the product and business model to scale and generate revenue. Most of the amount raised during Series A goes toward marketing, sales, and managing key operations.
Series A rounds typically raise between approximately €3 million and €10 million. However, that usually depends on the market conditions and the company’s valuation. Since this is a later stage, you need to carefully decide how much equity to give away in order to maintain sufficient control over your startup.
Typical Characteristics of Series a Rounds:
- Funding Amount: Approximately €2.7 million to €9 million
- Equity Share: Priced rounds (preferred stock)
- Purpose: To grow the business, build product-market fit, and scale operations
- Sources of Funding: All of the above, plus VCs that focus on Series A rounds
Equity Share During the Series a Round
By the time you reach Series A, you've likely validated demand and are now focused on scaling, expanding your team, improving operations, and entering new markets. This is a major funding milestone, and valuation negotiations become especially important. For example, raising €4.9 million at a €19.4 million post-money valuation means investors will own around 25% of your company.
That’s typical for a Series A round, where founders often give up 20–30% of equity to bring in the capital needed for growth. In short, you usually give up 20–30% equity during a Series A round.
Beyond Series A: A Quick Look at Series B and C
After Series A, companies may move on to Series B and C rounds. These later stages are geared toward scaling the business, optimizing operations, and expanding into new markets. Series B typically focuses on accelerating growth, while Series C often aims at market domination, acquisitions, or preparing for an IPO. Although my experience mainly revolves around pre-seed to Series A funding, understanding these stages is crucial, as the dilution impact increases with each successive round.
Understanding Equity Share During Series B and Beyond
By the time you reach Series B, your company likely has solid traction, growing revenue, and a proven business model. Series B funding typically focuses on optimizing operations and expanding into new markets. At this stage, equity given away usually falls in the 15–30% range. It’s important to plan your fundraising carefully raise only what you need to avoid unnecessary dilution.
Series C funding is often used to scale globally, acquire competitors, or strengthen your position as a market leader. Valuations are generally higher by this point, so the equity given away tends to be smaller, though it’s highly dependent on market conditions. The key in Series B and C rounds is to prioritize investors who bring not just capital, but also expertise, partnerships, and access to new markets.
How Much Equity to Give Up: Tips to Minimize Dilution
Raising cash for your startup is a double-edged sword. On one hand, you need the funding to grow your business, build your team, and scale operations. On the other hand, each round of funding means giving away a piece of your ownership. That’s why it’s important to plan ahead and understand how much equity you should give up in each funding round before negotiations begin. Follow these tips to minimize dilution and protect your stake :
Early-stage money is the most dilutive because your valuation is lower. Be realistic about how much funding you need to hit your next milestone.
Avoid creating a bigger stock option pool than you need. Investors may push for a large pool, but a well-thought-out hiring plan can strengthen your negotiation.
Understand the impact of SAFEs, valuation caps, and convertible notes. These terms can affect future dilution significantly.
Remember, every percentage point matters. Even a small difference in ownership today can translate to millions of dollars as you scale.
Take the time to understand term sheets and SAFE agreements. Decisions made hastily can lead to unintended long-term consequences.
In conclusion, startup founders must carefully plan how much equity they give up in each funding round. Finding the right balance between growth and ownership protects long-term control. If you don’t plan strategically, you could find yourself giving up so much equity that you lose control entirely. To avoid this, it’s crucial to raise only the capital you truly need.
(FAQ)
Q1 : How do I know how much equity to give away as a new founder?
As a new founder, it’s natural to wonder how much equity you should give up in each funding round. The answer depends on how much money you need and what investors think your startup is worth. In early stages, most founders give away 10–25%.
If you're just starting, tools like SAFEs or convertible notes let you raise money now and decide the exact amount of equity later. Just make sure you’re giving away enough to grow but not so much that you lose control.
Q2: How much equity is typically given away in each round, such as pre-seed, seed, and Series A?
It depends on your startup’s stage, valuation, traction, and negotiation, but here are typical ranges:
- Pre-Seed: 10–15% — often via SAFEs or convertible notes, which convert into equity later.
- Seed: 10–25% — based on product readiness and early market traction.
- Series A: 20–30% — tied to valuation and the amount you’re raising to scale.
Each round trades equity for capital to grow your business, so balancing dilution and runway is key.
Q3: What’s the difference between a SAFE, a convertible note, and a priced round?
A SAFE is a simple agreement where investors get shares later, usually when you raise your next round. A convertible note is similar but acts like a short-term loan that turns into shares later. A priced round (like Series A) is when investors buy a set percentage of your company based on an agreed-upon valuation. In short, SAFEs and notes delay the decision on how much equity you give up, while a priced round locks it in.
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