What's a Typical Founder's Percentage?

If you're thinking of offering outside investors stock in your company in exchange for their funding, you might wonder how much stock to give them, and how much to keep for yourself. Unfortunately, there are no pat answers.

How much stock you keep depends largely on how much money you need to raise, how you plan to structure that financing, the intrinsic value of the business, and what the long-term opportunities and upsides are. But as a global rule, remember this: initially, no passive investor should want to own a majority of the business.

The last thing any smart investor wants to do is to take away your incentive to make the business work. If you no longer own the majority of the business, what keeps you from walking away if the company runs into difficulty? Because of the incentive issue, the initial investment round should never exceed 35 to 40 percent ownership of the company.

When you raise additional sums, it's a reasonable goal to double or triple the valuation for each round as long as you've been successful in meeting benchmarks and the company is making significant progress. To demonstrate the importance of increasing the valuation over time, as you raise additional capital, look at this example: if you raise $2 million for 33 percent of the company on the first round and you're successful at doubling your valuation on the second round, you will have to give only 11 percent of the company for the second $2 million.

No matter what valuation you get, keeping a controlling ownership interest in your company over the long term should not be your goal. Maximizing the value of your ownership is much more important. After the second round of outside investment, the founders will have given up voting control of the ownership. At the time of a public offering, you should consider yourself highly successful if the founders have retained 20 percent of the company, if 20 percent is in the hands of management, and if the remaining 60 percent is in the hands of outside investors.