The Stake
of the
Founder
Analysing founder stakes across
different stages of company growth
Equity ownership is a good incentive for startup founders to
stay with companies throughout their growth journeys. But
some degree of dilution is always inevitable when raising
equity investment, as founders swap shares for funding.
And so, the further along a company’s growth journey, the
more diluted a founder’s equity stake typically is. Whilst the
influx of capital helps to accelerate startups’ growth, this
process also reduces founder control. For this reason, most
aim to maximise their company’s valuation alongside equity
fundraisings, to minimise dilution.
As of late, European founders are also increasingly looking to
alternative methods of growth—such as venture debt—in
order to retain more control over their company’s cap tables.
Yet most high-growth UK companies still look to equity
investment as a primary means of growth.
Foreword
This report focuses on founders of private, high-growth
companies, currently headquartered in the UK, that have a
shareholding. According to our data, these high-growth
founders own, on average, 43% of shareholdings in their
companies. Women retain a larger average stake than men, at
52% versus 41%.
Interestingly, the proportion of founders owning 100% of
shareholdings in their companies (8.7%) is almost exactly
equal to the proportion of those that own less than 1%
(8.8%). These figures show that around 1 in 5 founders are at
the extreme ends of the ownership scale.
Inside, we analyse how average founder stakes differ by
company stage of evolution, and by the volume and value of
equity fundraisings they’ve secured, breaking this down
further by founder gender (where gender is known).
We use eight criteria to identify
high-growth and ambitious
companies in the UK.
Each of these is a sign that a
business is either actively growing or
creating ambitious growth plans.
All companies featured in this report
have met at least one of these
growth triggers, and are thus tracked
on the Beauhurst platform.
Equity investment
Accelerator attendance
Scaleups
MBO/MBI
Venture debt
Grant recipients
High-growth lists
Academic spinouts
What do we mean by ʻambitiousʼ?
1
Stages of evolution
Overall, the stake of high-growth UK founders is greatest at
the seed and established stages. For seed startups, whose
funding typically stems from grants, angels and the crowd,
founders own an average of 48% of shareholdings. Average
founder stake is 33% for companies at the venture stage,
40% at growth stage, and 47% at established stage.
Venture-stage businesses see the lowest average founder
stakes for both men and women. This class of company’s
most common investor type is venture capital firms. Later
stage companies may be more likely to look to alternative
means of finance, such as debt.
Male founder stakes follow the same trend as overall
figures. Whereas, female founder stakes differ slightly, with
women owning a greater average stake at growth stage
(48%) than established stage (44%).
Founders of venture-stage businesses
have the smallest stakes
FOUNDER STAKES BY CURRENT STAGE OF EVOLUTION
Given that men make up a majority proportion of the UK’s
high-growth founder population, it’s unsurprising that
male founder stakes are closely in line with the overall
average.
Female founders, on the other hand, retain a larger than
average stake across each stage of evolution (ranging from
8 to 12 percentage points above overall figures), apart from
the established stage (3 percentage points below). This
could be down to the fact that women have less access to
VC investment than men, and so may look to non-equity
funding routes more often.
Another notable difference between male and female
founders is the point at which they own the greatest
proportion of shareholdings. For women, this is at the seed
stage (57%) and, for men, this is at established stage (47%),
where average company age is around three times older.
Female founders retain a larger stake
at almost every stage of growth
FOUNDER STAKES BY CURRENT STAGE OF EVOLUTION
2
Equity rounds
Despite fluctuations towards the later equity rounds (due to a
relatively small sample size), the relationship between equity
investment and founder stakes is clear: as companies secure
more funding rounds, founder stakes decrease.
The average shareholdings owned by founders fall from a high
of 57% for those that are yet to secure equity, to a low of 0.7%
at 18 rounds. But up until the fifth funding round, average
founder stakes remain above 25%.
The decrease in average stakes at each equity round is most
dramatic at the start, falling 20 percentage points between
rounds 0 and 2, versus 10 percentage points between rounds
2 and 4. This may reflect growing average valuations as
companies progress—as valuations become higher, investors
may buy smaller stakes in the business, thus reducing founder
dilution. Another aspect is that investors like to leave founders
with a reasonable sized stake to keep them incentivised
Average founder stakes remain above
25% until the fifth funding round
FOUNDER STAKES BY NUMBER OF FUNDING ROUNDS SECURED
This inverse relationship between number of equity deals
and average stakes is seen amongst both male and female
founders. The initial decline between rounds 0 and 1 is
especially sharp for female founders, however, falling 18
percentage points (from 67% to 49%), compared to 10
percentage points (from 54% to 44%) for male founders.
Before raising their first equity round, male founders have a
slightly smaller than average stake (54% versus 57%), but
are otherwise very closely aligned with overall figures.
Whereas, female founders generally retain a larger than
average stake, up until round 10. This gap is most
pronounced for those yet to secure any fundraisings (at 10
percentage points above the overall average) and at round
5 (6 percentage points above). From round 10 onwards,
female founders have a smaller than average stake.
Before raising equity, male founders
have a lower than average stake
FOUNDER STAKES BY NUMBER OF FUNDING ROUNDS SECURED
3
Amount raised
With founder stakes and equity rounds so closely linked,
it’s unsurprising to find that the total amount of equity
raised also has a strong negative correlation to the
proportion of shareholdings owned by high-growth UK
founders.
Overall, average founder stakes fall as amount raised
increases, from a high of 57% with no funding, to a low of
11% at £100m+. This applies to both male and female
founders. On average, founders retain at least 25% of
shareholdings until they’ve secured £10m or more in
equity investment.
But the initial decline in founder stakes, between £0k and
£1-£100k, is much sharper for female founders than their
male counterparts. Women see a 14 percentage point drop
in average shareholdings (from 67% to 53%), compared to
7 percentage points (from 54% to 47%) for men.
The initial decline in founder stakes is
sharper for women than men
FOUNDER STAKES BY VALUE OF FUNDING ROUNDS SECURED
Once again, male founder stakes are very closely aligned
with overall figures, despite having a slightly smaller than
average stake before raising any equity investment, whilst
female founders initially retain a larger than average stake.
But the gap between female founder stakes and those of
the wider founder population quickly decreases as
companies begin to raise equity investment. Prior to
securing any fundraising, the average proportion of
shareholdings owned by female founders is 10 percentage
points above the overall average, but this falls to 4
percentage points once £1k-£100k has been raised.
Beyond the £10m mark, however, women retain a smaller
than average stake in their companies. Up until £100m, this
is only a 1 percentage point difference. But by £100m+, this
increases to 7 percentage points.
Beyond the £10m mark, women retain
a smaller than average stake
FOUNDER STAKES BY VALUE OF FUNDING ROUNDS SECURED
When we narrow down the data to look solely at
mixed-gender founding teams, however, a slightly different
picture emerges.
Here, male founders actually retain a greater than average
stake throughout their companies’ growth journeys, while
women have a smaller than average stake. The gap
between men’s and women’s average stake is at its
greatest at the £100k-£200k point, but is maintained to
some extent until amount raised reaches £100m or more.
And so, the trend of women retaining more equity than
men in the lower funding brackets (when looking at all
founding teams, not just mixed-gender) could be down to
differences in how male and female-led businesses are
operating. For instance, all-female teams may prioritise
equity retention more than their all-male counterparts.
Women in mixed-gender founder teams
have a smaller than average stake
FOUNDER STAKES BY VALUE OF FUNDING ROUNDS SECURED,
MIXED-GENDER TEAMS ONLY
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