When investors talk about dilution numbers they only present the best case scenario, and this post is no exception.
If you really want to understand dilution, don't look at the best case. You need a graph showing your payoff as a function of exit size. Pay special attention to the range where liquidation preferences and multipliers kick in, because the sharks aren't going make you an infographic for that case.
Note that his example does not show a multiple on the liquidation preference, and it doesn't show how the early employees can get screwed even when the founders do well. But it's more realistic than Suster's infographic.
Actually I didn't find the infographic that easy to understand. Here's a version I made that shows a large amount of money going into the business but the founder value increasing at a slower rate due to dilution:
http://bit.ly/qO90k5
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[ 4.3 ms ] story [ 21.9 ms ] threadIf you really want to understand dilution, don't look at the best case. You need a graph showing your payoff as a function of exit size. Pay special attention to the range where liquidation preferences and multipliers kick in, because the sharks aren't going make you an infographic for that case.
Note that his example does not show a multiple on the liquidation preference, and it doesn't show how the early employees can get screwed even when the founders do well. But it's more realistic than Suster's infographic.
Bottom line #1 - the actual sale price of the startup can have very little to do with what the founders get to take home (especially after taxes).
Bottom line #2 - (obviously) increase the startup value by orders of magnitude if looking for FU money.