In order to determine a relationship, we look at correlation. Recall that if the correlation was -1, it would mean definitively that the more equity raised, the lower founder ownership would be. Alternatively a correlation of 0 would mean there is no relationship at all between capital raised and founder equity, and a correlation closer to 1 would mean the more equity raised, the higher a founder’s ownership would be (very perverse). The data is below.
Hardware and ecommerce show negative correlation. Hardware and ecommerce are the only other categories where we believe there are enough companies to look at each segment in isolation. Hardware had a correlation of -0.61 and ecommerce was -0.44. This is more in line with what we expected to see. In other words, the more you raise in those categories, the less founders own.
So how can there be no relationship between founder equity and capital raised? Does this mean you should raise as much money as possible? No. Looking at the data in a silo is somewhat misleading: if you raise money, you’re getting diluted. That’s a fact. But, valuation matters so if you can raise at very high valuations, your equity is much more likely to be preserved whereas if you’re getting low valuations, large capital raises will eat materially into founder equity.