At a recent talk for the Founder Institute, Hustle Fund Co-Founder and General Partner Eric Bahn, was asked this question:

When you’re fundraising, what percentage of your company should you be giving away?

Straightforward enough, and we promise there is a straightforward answer. But first, let’s walk through how to think about the long arc of fundraising.

When you’re working on getting your company off the ground, it can be easy to get hyper-focused on optimizing this round of fundraising.

But you know what happens after this round of funding? Another round. And after that? Hopefully your Series A. And after that? You get the idea.

So what you want to do in the early rounds of seed funding is set yourself up for success in the long term.  

The bottom line is this...

Which means, the amount of your company you want to give away is no more than 50% across all rounds of seed funding, before your Series A.  

If you give away too much equity too early, there won’t be enough left to make your company interesting to larger investors in later rounds. There simply won’t be enough upside left. Same issue with recruiting—there won’t be enough equity left to have stock options to grant as employee incentives.  

In other words… you’re not necessarily saving all that equity for yourself, but for your company’s future stakeholders.

And don't forget about your valuation

The other way you want to set your fundraising up for long-term success is to keep an eye on your valuation. A big valuation seems like an obvious thing to want. And maybe it is, if you’re only looking at this round.

But again, you’re looking beyond, to future rounds, and future investors. And a general rule of thumb for a VC-backed startup is that from round to round, the valuation would double.

(Btw, we wrote about the dangers of high valuations here.)

In other words, a sky-high valuation in one round means a doubly-sky-high valuation in the next. Can your company sustain that? What if there’s a larger downturn in the market?

Look at the big picture, not just the numbers on the term sheet in front of you.  

So, in summary:

• Expect to give away no more than 50% of your equity in pre-Series A.
• Keep an eye on your valuation. Don’t let it get crazy high.  

These two things will keep you on a healthy path for the future.

You got this,

Carolyn

(pinch-hitting for Kera while she’s on mat leave)

This article was written by Carolyn Abram, a freelance writer with a passion for technology. She also writes fiction and teaches writing classes in her home of Seattle. You can learn more about her at her website or on LinkedIn.