Even at the risk of trivializing the subject: If there is one character who embodies the entrepreneur’s fear of being diluted by a capital increase like few others, then that is the Gollum of Middle-earth from “The Lord of the Rings”. His obsession with owning the one ring is almost as overblown and unsuccessful as many entrepreneurs’ obsession with retaining ownership of their company when faced with an investment round. Because, as you well remember Sure Faith, legal advisor to Esade’s network of business angels, Esadeban, “dilution is inherent in virtually all investment rounds undertaken by a company when the pre-round partners do not subscribe to that capital increase.” That is, more or less than relax and enjoy.

Joking aside, there’s no harm in assuming that even if you’re diluting yourself, “as you go up in value, you have a lesser percentage of something that’s more valuable,” he explains. Carlos Andonegui, Founder and Director of Vinopremier.com and Professor at EAE. He started with 50% of his company, but after three rounds of funding, his stake has reduced to 32.5%, but of a much larger company: “I realize I’d rather be a lion’s tail than a mouse’s head”. Or as Luis Martín Cabiedes, Partner at Cabiedes & Partners, puts it: “Ask yourself a question: what do you want to be: rich or king? Do you want 10% of a company worth 20 or 2% of a company worth 100? The package is the same a priori, but neither the potential nor the performance are the same. The Botín barely own 0.63% of Banco de Santander, but they remain in control.

How serious is it to dilute in this case? In fact, “you shouldn’t be afraid of diluting yourself, but you should be afraid of losing control,” he insists. Luis Gosalbez, CEO of Terminis and Metricson. Something you expressly consent to Pep Gomez, CEO and Founder of Fever. For this entrepreneur who has raised more than $8 million, “It’s important not to focus on maximizing what’s yours, but on the overall value of the business. If you do a good job, the investors themselves have every incentive to give you more stock options or whatever it takes to motivate you and keep you in control of the company.”


If you’re still panicking about losing ownership of your business, these eight strategies might help:

Do the search in peace. as mentioned Rudolph Carpintier, CEO of DAD, “The best way to avoid investor pressure is to start looking for funds months in advance. It’s the freest way to negotiate.” In fact, if the investor sees that you’re desperate for money, he’ll tighten his nuts; The less rush you are, the better. And, as Cabiedes advises, “don’t invest unless you’re confident that the injection of capital will add real value to the company.”

And you too. Ideally, you can also go into the round with some of your equity, either through your savings or by applying for a loan, public or private, which will in some way allow you to maintain your strong position on the council.

Divide your needs into rounds. “It is important that the entrepreneur is clear about a business plan and the underlying financing strategy from day one. If you know how much it’s going to cost you to execute your plan, you can split that amount into different rounds so that you do smaller rounds that don’t involve very important dilution first, and, as you get better metrics, you can do bigger ones Do laps,” explains Ramón Saltor, co-founder and CEO of The Crowd Angel. It’s a bit of a maxim Meinrad SpengerCEO of Másmóvil: “It’s not healthy to start the company with a lot of capital because you’re not willing to manage it efficiently, so it’s better to expand little by little”.

Look for more than one investor. Exclusivity is always a risk which may result in us accepting unfair terms. Therefore, look for more than one partner. In equity crowdfunding, for example, it allows you to raise capital through many partners who can only purchase small packages, which does not jeopardize your property. The problem with this option is that managing so many shareholders can be messy: you’re interested in channeling them into some sort of company or group.

And choose good ones. To the Angel Saint SecondProfessor at the EAE and Director of the Keiretsu Forum Area, “the moment you make room for an investor, you are already diluting yourself, so look for someone who will add value to your company on top of the capital to help you , grow up “. Marco Collado, co-founder of Iomando and campus manager of Ironhack in Barcelona, ​​recalls his experience like this: “At Iomando we raised 150,000 euros. We’ve been very obsessed with the issue of dilution, with the fear of losing capital, and we haven’t realized that the real discussion is more about aligning investors who can contribute to you, the so-called smart Money”. For Meinrad Spenger it is very clear: “Many entrepreneurs really want to make money and hire people who exploit their experience and their self-confidence or who are inexperienced and nervous about investments. You have to be careful who you invite to the party.”

Look for alternative sources. “There are other financing formulas that aren’t through equity and that have lower demand and rigor. Some very interesting ones are, for example, reward crowdfunding (where you receive financing for the first phases in exchange for the product) or crowdlending (loans between private individuals). The average capital is of the order of 60,000 euros,” explains San Segundo.

I work for actions. “I started Take a Chef with just my capital and work, but when I wanted to take the startup to the next dimension, I had to make an investment decision. So I thought about what I would need this money for and after doing my numbers I realized that 70% would be allocated to human capital so I decided to do the remaining 30% with my own capital and 70% through Working partners I would choose. They would work for a far lower salary than their due, and that amount was replaced with equity. I figured if I bring in an investor I have a supervisor and I need to form a team. My bet was the other way around: I hired people to help me and get more involved because they will be part of the shareholders,” he explains. Galder KabiketaFounder of Take a Chef.

Finance yourself with your customers. To the Luis Martin Cabiedes, a partner at Cabiedes & Partners, is clear: “Anyone who doesn’t want to dilute themselves isn’t looking for investors. I am outraged that large rounds of financing that only have a good power point are counted as successes. I prefer companies like Zara that don’t go public until they have size. The key? Fund yourself from your customers: they give you money, but they don’t take your business bit by bit”. It’s what is called bootstrapping, you will have slower but more stable growth.

3 tips that are worth their weight in gold

1. Neither above nor below. “Undervaluation is not advisable, but neither is overvaluation because it puts the entrepreneur under a lot of pressure,” says Meinrad Spenger. For Fede Segura, a high rating is more interesting for the entrepreneur “because the new partners have to pay more to get started and the entrepreneurs are less diluted”. You also need to understand that “the higher the valuation in the first round of investment, the higher the future valuations should be.

2. Choose the speech well. “It is very important to know who you are dealing with in order to know which indicators to deal with: if you are a stock specialist, the indicators that interest you are the share price; If it’s a mutual fund, I have to talk to them about distribution,” explains Luis Gosálbez. And you also have to understand that the ratings are not the same depending on the industry. You must be rational about the requirements, business plan, and scalability.

3. Beware of the before and after money evaluation. Gosálbez and Segura explain it with the same example: imagine we value the company at one million euros (advance payment) and want to ask for 100,000 euros. A priori one would think that the corresponding percentage would be 10%. But in reality, with this investment, the company will be worth 1,100,000 euros (Postmoney), so the percentage corresponding to the investor would be 9.09%.

How can I rate my startup?

“A startup is worth what people are willing to pay for it,” says Luis Gosálbez. And that’s true, especially when we’re in early shifts where the company hasn’t reached cruising speed and there are few metrics or numbers to quantify the value of our treasure. This assessment is usually based “almost on a gentlemen’s agreement,” adds Ramón Saltor. The most objective methods would be:

The discount or cash flow method. As explained in the report The private investment process: basic elements to successfully close operations, published by Asban, this method consists of “discounting today the cash flows that a company or project expects in the future and using a reasonable discount for that valuation.” . For early stage investments, due to the high cash flow risk, an ad hoc discount rate is used, which ranges from 33% to 55%.”

The multiple or comparable method.It is the most common method. It’s about analyzing the value of other companies that have similar characteristics to ours.

The dilution method. “It consists of making an assessment in terms of financial need and the percentage of shares that the entrepreneur is willing to give up,” says Saltor.

The VC method or venture capital method. In the words of The Crowd Angel’s CEO, “It’s about estimating a reasonable sales value within a defined period of time and using it to calculate what valuation would have to be taken now in order to achieve the expected profitability targets.” Cabiedes gives him numbers: “As soon as the project we want to achieve is established, we value its value. Let’s imagine we estimate it at 10 million. Once this is fixed, we wonder how much will it cost us to get there? Let’s say we estimate it at 300,000. Since the investor needs to multiply his investment by 10 (in my case it’s the number I estimated, other investors will have different multipliers) and the entrepreneur needs 300,000 euros, we have what I want to achieve when we scale up reach or the set term is 300,000 x 10, which is three million from a company worth 10. So my percentage will be 30%.”

company management