categories

HOT TOPICS

NEWSLETTER

If you are considering becoming a 1M/1M premium member and would like to join our mailing list to receive ongoing information, please sign up here.

Subscribe to our Feed

Do NOT Dilute Equity Too Soon

Posted on Friday, Oct 30th 2020

At 1Mby1M, we believe that Ownership Matters.

Mark Zuckerberg retained 26% equity in Facebook.

Zuckerberg’s net worth has crossed $100 billion in 2020.

How did Zuckerberg retain 26% equity in Facebook?

Facebook started with friends and family money in February 2004.

By September 2004, it had ad revenues.

Peter Thiel invested the first outside money.

Peter Thiel invested $500k for $10% of Facebook.

Many startups get $25k for 10% equity.

Peter Thiel invested $500k for $10%.

That kept the cap table healthy.

Facebook remained attractive for follow-on rounds.

Let’s look at all the Facebook rounds …

September 2004: $500K Seed | Valuation: $5M 

May 2005: $12.7M Series A | Valuation: $100M | Revenue Run Rate: $6M

May 2006: $27.5M Series B | Valuation: $525M

EVERYONE was talking about Facebook. Zuckerberg was hailed as the next Bill Gates.

Zuckerberg wielded a lot of negotiating power in each round. Facebook was a Rocket. VCs were begging to get in. Zuckerberg did not get carried away.

October 2007: $240M Series C | Valuation: $15B | Revenue run rate: $150M

Yahoo! wanted to buy Facebook for $1B in July 2006. Investors wanted to sell. Zuckerberg DID NOT want to sell. Zuckerberg won, because he had OWNERSHIP control.

Two Lessons from Zuck:

  1. Don’t raise too much money too soon.
  2. Focus on revenues to keep valuations high and minimize dilution

OWNERSHIP MATTERS.

Use a non-equity accelerator.

Don’t raise money too soon.

1Mby1M does NOT charge equity.

Early funding destroys cap tables.

Destroyed cap tables = disaster for future funding.

Be like Zuckerberg. Take care of your ownership.

If you’re looking for funding, we routinely introduce entrepreneurs to investors and help negotiate the best deal. 

Want to discuss your situation? Come to the Free Public Roundtables. We have them weekly.

Hacker News
() Comments

Featured Videos