We continue to hear VCs tell us they believe ownership purchased by investors in a startup round (ownership percentage) is declining. So, in search of the truth, this week we dug into our proprietary dataset and analyzed over 240,000 rounds from around the world. To make sure the analysis is relevant and informative to current entrepreneurs and VCs, we limited our output to rounds that were executed within the last 10 years.
Here’s what we discovered
Similar to what we saw last week when we analyzed Post-Money Valuations Here we see what looks like a round number bias. It is much more likely for a VC round to acquire an ownership percentage such as 20 or 25% as opposed to a ‘not round’ number like 19%. We also find that the distribution spans a wide range with more weight in the 15-30% range.
We found that over the past 10 years, the average Information Technology round sold 22% of the company. And the average Healthcare round sold 29% of the company. Medians were slightly lower, as expected. We also found that the typical Healthcare round consistently sold more ownership than the average Information Technology round regardless of stage.
But perhaps the most intriguing finding confirms what we have heard from VCs: there has been a steady decline in ownership acquired by VCs over the past 10 years.
What do you think has caused a steady decrease in ownership?
After analyzing this data, here are some hypotheses we have that we may try to test in future posts:
- More money raised by VC funds and thus more competition to win deals
- Increased valuations
- Companies staying private longer and thus raising more and more rounds with less dilution per round
- Potential shifts in VC ownership strategy
- More capital efficient companies being funded, skewing the numbers recently
Any last questions? I’d love to hear your thoughts on why ownership is declining.
Reach out and chat with me (Collin West) on LinkedIn, Twitter, and especially in the comments section below for Q&A.
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This is awesome data, thanks for sharing. Would love to know how ownership size by round has increased (eg how ownership for seed rounds has declined vs series A or C) and plot change in ownership percentages against average size of rounds. Given that there has been a proliferation of micro funds and later stage funders, but number of Series A funders has been more constant, would be interesting to see how supply of funds may have contributed to more entrepreneur friendly rounds.
Great Ben – I’ll put this on the list of potential items to study! Thank you for the suggestion! – Collin