Founder Ownership Dilution by Financing Round

Arguably the greatest tension for founders in financing their company is a combination of understanding the tripartite dilemma arising from the expectation of ROI from capital providers, company valuation and ownership dilution. In this memo, we explore the issue of ownership dilution simply in the context of median market data and notwithstanding that each situation will be evaluated on its merits, what founders can expect should be evaluated against the median data presented.

It should also be noted that the categories presented appear rigidly defined but in practice there may be rounds within the seed category ( Series Seed; Preferred Series Seed etc.) before getting to a Series A. Importantly, there is no set of uniform assumptions presented and correlated effects which would reflect the key drivers of valuation which ultimately impacts price per share and dilution. We will explore these topics in other StepChange insight papers.

The below data illustrates the typical evolution of equity ownership as venture-backed companies raise successive financing rounds.

Founder Ownership Dilution by Financing Round

(Median Fully Diluted Ownership, 2023–2025)

Financing Round	Founders	Employee Pool	New Investors	Prior Investors
Seed	54.8%	12.1%	20.6%	12.5%
Series A	35.6%	14.4%	20.0%	30.0%
Series B	21.8%	15.6%	16.5%	46.1%
Series C	16.1%	16.8%	12.6%	54.5%
Series D	10.4%	18.2%	10.2%	61.2%

Source: Carta (Rounds completed during 2023–2025); chart published by Andreessen Horowitz (a16z).

Key Takeaways

Dilution is a normal consequence of raising capital and should be evaluated alongside the value created by the capital raised. Value created by capital and the need for future capital rounds need to be appreciated at each stage.
The higher the growth rate and growth endurance profile of the business, the higher the valuation and the less dilution would be expected in future rounds. The opposite also holds true.
Even though the median data shows that founders typically own only about 10% by a median Series D financing, that ownership is often worth substantially more in absolute value because the company's valuation would have increased significantly.
Dilution for all investors through employee equity pools of between 12–18% is a common practice among successful venture-backed companies to support recruiting and retention. Founders may also participate in the equity pools on each round as an incentive depending on the need for capital and level of dilution experienced.
Existing investors increasingly dominate the cap table over time because they often exercise pro rata rights and continue investing in later rounds, preserving and expanding their ownership positions.

Acknowledgement & Attribution

This paper is an independent summary and commentary prepared by StepChange Capital based on a LinkedIn post by Andreessen Horowitz.