Compared to 2008, the average startup is going through 3-4 rounds of funding before the Venture round series A. In fact, the most important skill startup entrepreneurs need to master right now is navigating the funding landscape.

It is not unusual to see startups bootstrap for 6-9 months, then get into an accelerator, and go through another accelerator (elapsed time after 2nd accelerator from start is usually 12-18 months and then go through an angel round of $250-500K and a seed round of $500K to $2 Million.

So, instead of having lemonade at the end the founders have water with a lemon.

In some cases I have seen startups go through a post-seed round after the seed round. Don’t call it a bridge round, it is apparently bad luck :).

**The biggest challenge with all these rounds before the series A is dilution.**

If I assume you and a co founder started a company, then you each own 100% of the company during bootstrapping. I am going to simplify and make it 50% each.

The average accelerator takes 6-10% in return for $50-$100K. I am going to assume 10% for $100K.

So, now after two accelerator rounds (very typical), you and your co founder own 40% each of the company (minus 10% for each accelerator, or 20% in total).

The average angel investor round, is now convertible in the Silicon Valley, but priced everywhere else. Typical dilutions are 10-25%. I am going to assume you get 10% dilution for $500K.

After the first angel round, you and your co founder each own 35% of the company.

Seed round valuations are rising, but so are dilution percentages. You will likely go through a seed round of $1 Million, diluting another 10%, which values your company at $10 Million post.

You and your co founder now own 30% of the company.

The next round will be the post seed round or the Venture round (Series A).

Both these investors will expect you to set aside 10-15% of your company towards employees, for the stock option pool. For the sake of simplicity I am going to assume 10%, but it is usually 15%.

Even before your series A, you and your co founder now own 25% each of the company.

Most entrepreneurs also bring on advisors early on. It is not atypical to have 3 advisors for the company and hence, you might end up giving them 0.3 to 1% of the company each. I am going to assume 0.3% each, so you will dilute another 1%.

Assuming you get a series A, with typical Venture terms, you will raise a $10 Million round and give up 30% to 40% of your company. I am going to assume 30% for $10 Million.

After the series A, you and your co founder each own 10% of the company.

**I made the math very simple and it is usually not this simple, but here is a table to show the progress.**

This is an illustrative example alone, not accurate, but in the ball park.

**On one hand you have both diluted a lot, but on the other hand you are both “worth” close to $6 Million on paper**.

Very helpful to see the realities of startup life.

By the time impressive series B’s and C’s are raised, many founders hold little equity at all.

This is very insightful post Mukund, thanks! It provides a clear picture on dilution and valuation as you grow. Thanks for the illustration chart.

The upgraded design of the blog is nice!