Editor’s Note: One fear that all-too-often freezes ambitious entrepreneurs out of their own success is this: if and when they seek professional funding, they’ll have to fork over ‘a pound of flesh’ to get it. They don’t want to give up ownership, so they put off raising capital, sometimes until it’s too late. If they do take pro money, and their company is successful enough to merit a second round, the sour grapes only get worse – further dilution.
It’s a Hobson’s Choice! Fail, or see your equity ground down to grains of sand.
Or is it? Some entrepreneurs cling to the myth of a “special” unit of ownership, so-called “founder’s equity” which is too precious to be diluted, like Class A shares with super-duper voting rights. But is this for real? One of our readers would like to know, once and for all, if “founder’s equity” is a panacea, as he’s been told that it is.
Question of the Day:
Can someone please define “founder’s stock”? I have seen this term thrown around at liberty, but as far as I can tell, there is no such thing as “founder stock.”
Recently there has been the concept of FF class stock but that’s not what I believe most people mean when referring to “founder stock.” My understanding of founder stock is that it is common stock, pure and simple. Am I right? — Bob Ngu, founder of JiggyMe
Is Bob right to be so cyncial? If he is, how can a founder build anti-dilution protections into his or her stock, in preparation for fundraising?