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Fundraising: I am screening few startups for funding. For a tech startup, what % stake should the the CEO or main guy hold, so he / she has skin in the game?
AB
AB
Assaf Ben-David, Mentor, Entrepreneur, Lawyer, Public Speaker answered:

Hi,
This is a huge question and one that I often get asked - from various aspects (investors, founders, service providers...).
General answer: there is no 'magic percentage' that a founder should hold - it all "depends" on the founders, on the investors, on the size of the investment, the industry and 10 other things. For example, the larger the share value, the lower amount of shares founder's are usually willing to have. Or if there are more founder's then each founder understands that they'll hold less shares. Or if it's an investor's market (wasn't until a few ago, now it is again - Corona virus...) then founder's know they will be expected to give up more. and more and more situations...so it depends.

As with any business deal, an investment is a negotiation, and you need to (1) know the market, (2) know the other side's interests/needs and (3) know what you want and what your BATNA/red line is.
If you read the other side well, you will know how many shares are enough for him to 'have skin in the game;
Also, in your example you need to remember 2 important things:
a. If there are 4 founders and you give one more %, then there will always be a feeling of inequality which will lead to problems.
b. On the other hand, If there is an equal division (25% each), this will lead to a deadlock in decision making.

If you really need a rule of thumb (even though there is NO one solution fits all), then it would be this: whatever the founder's ask for in their pitch, add 20%-30% to the shares that the investor gets or deduct 20%-30% from the amount requested. But again: I don't like this solution and it may create a win-lose feeling (win for investor-lose for founder's) which will eventually cause tensions. So if you're going to invest, but as well trust the team, and give them close to what they're asking unless the financial numbers don't justify it (a lot of first time entrepreneurs don't know how to do the numbers properly).

I teach negotiations, and do tens of them each week. Happy to help you with them, and happy to refer startups to you (if you tell me what stage you invests, amounts, fields etc).

I've successfully helped over 350 entrepreneurs, startups and businesses, and I would be happy to help you. After scheduling a call, please send me some background information so that I can prepare in advance - thus giving you maximum value for your money. Take a look at the great reviews I’ve received: https://clarity.fm/assafben-david

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