Stock valuation makes no change in a founder's bank account. Investors normally purchase new shares which dilute existing shares. They rarely purchase shares directly from the founders. So, the founder bank balance doesn't change at all. This is actually shown in the initial graph where the founders shares are being diluted with each new valuation as new shares are created.
If investors purchase shares directly from founders this will result in an increase in bank balance. But it will also result in lower total stock value growth in the future for the founder who sold. Perfect example Wozniak and Apple shares. Mathematically if a founder sold any shares to any investor (at valuation price) it will result in less total value at the final valuation than the other founders that held their shares. This assumes increasing valuations in the future as shown in the initial graph.
The growth deviation between founder and company has to exist so investors can get a good return on their overall investment. Most companies fail... which means most investments also fail. It is just the few successful investments that pay for all the failed investments.
A bootstrapped business not taking investment or diluting founder shares will show founder stock value align directly with company value.
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Paul Bodnar
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Original Message:
Sent: 02-06-2024 14:08
From: Brent Devey
Subject: Founder ownership over time
Super helpful to view it from this perspective as well. Thanks, @Paul Bodnar!
How would you say that money in the bank for a founder progresses as the valuation increases?
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Brent Devey
Community Manager
Carta
Salt Lake City UT
Original Message:
Sent: 02-06-2024 10:28
From: Paul Bodnar
Subject: Founder ownership over time
Graph of Company Valuation and Founder Value in Dollars using the same data in graph presented above.
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Paul Bodnar
Original Message:
Sent: 02-05-2024 10:14
From: Brent Devey
Subject: Founder ownership over time
Ever wondered how your equity ownership evolves over time as your startup grows? Here's a great visual that shows how the average founder's equity changes as the company grows.
Does this resonate with your experience?
Plus, here's an exclusive invitation to our Carta Compensation Community – the go-to hub for all things compensation and equity awards. Join discussions, seek advice, and connect with fellow founders navigating the intricacies of compensation in the startup world.
What questions or thoughts do you have about founder equity, valuation, or compensation? Drop them in the comments and let's discuss.
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Brent Devey
Community Manager
Carta
Salt Lake City UT
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