Translation and notes
A readable adaptation of the article's core ideas, with the original source clearly credited.
An equity decision should not begin and end with the percentage a founder gives away. Ownership is a claim on a business, and a smaller claim on a more valuable business can be worth more. The central question is whether the investor or new colleague adds enough value to make the remaining stake more valuable than it would have been without the deal. Protecting a percentage while leaving the company's main bottleneck unresolved can be expensive.
The arithmetic supplies a useful threshold. If a transaction leaves you with 90 percent of your previous stake, total company value must rise by more than one divided by 0.9, or roughly 1.111 times, for you to come out ahead. A ten percent increase does not offset ten percent dilution: 0.9 times 1.1 is only 0.99. This is a comparison with your previous ownership, not a claim that you personally own the entire company. The equation clarifies the hurdle; it does not forecast the outcome.
For financing, explain how cash or investor support changes the company's prospects: reaching a sellable product, removing a distribution constraint, or reducing the risk of running out of money. For a key hire, identify the result the existing team cannot deliver without that person. As a practical application, compare the with-deal and without-deal paths using explicit milestones and assumptions. An impressive title or a high headline valuation does not establish the added value by itself.
The uncertain part is the estimate of future value, not the multiplication. In applying the idea, test a downside case and name the assumptions that reverse the decision. The simple equation also does not capture every contractual right, control provision, or payout term, so legal review remains a separate requirement. A useful decision memo records the dilution, the break-even uplift, the evidence for exceeding it, and the best alternative. Neither avoiding all dilution nor accepting it on the strength of a growth story is a sound default.
Selected advice from the article
- Put the proposed dilution and required value uplift on one line.
- Ask for evidence behind the three assumptions driving the expected contribution.
- Document the best alternative and review contractual rights before signing.
Operating takeaways
- Name the bottleneck the proposed investor or colleague will remove before negotiating a percentage.
- Calculate the break-even value multiplier as one divided by the fraction of your stake retained.
- Compare the deal with a realistic no-deal path, using explicit milestones rather than prestige.
- Stress-test the value assumptions and review control and payout terms separately.
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This is a free adaptation, not a word-for-word republication of the original article.