I recently saw a LinkedIn post by Davidson Oturu explaining Startup dilution using a Pizza analogy. I decided to take it a step further. I explained how less is more. See the screenshot below.
Cc: screenshot from Davidson’s post on LinkedIn
Our pizza circle of friends is not a support group🙄. Why allow the 5th guy to come and reduce our slice from 25% to 20% each?
You must come in with value of some sort. Bro (investor) pulled up with add-ons and additional toppings like tomato sauce and fresh herbs (funds) which was sprayed across the 5 slices of pizza. Making each slice which is 20%, more weightier than it used to be when it was 25%.
Mathematical Irony, 20% > 25% 😅.
Another friend (think of him as a superstar employee like of VP of Engineering or Chief Marketing Officer) who came along with bottles of coke is welcome to join making us 6. Dividing our pizza further.
2 hours into the party but it doesn't feel like a fun party. It's so dry because the 6 of us are all nerds and introverts.
One of us decided to call our high school clown to rush down. Dude has nothing to offer but the most ridiculous jokes ever, making us 7. This 7th guy brings life to our party. He is so loud that he makes sure the waiter brings our orders on time. Our share of pizza is further reduced. (consider him an advisor or member of the board of directors).
Less is more
The 7th guy's slice will be smaller. He joined a bit late and we don't consider his role as challenging as the rest of us doing the hard work of improving the pizza.
The 8th (another board member and advocate) is a great photographer to makes memories and shares them on his Instagram accounts with large followers. This will earn our party more credibility or publicity to his followers (potential customers) who will be willing to stream it live if we decide to party every weekend. (Another reality show😎)
Photo credit: NetSuite
Due to the volume of viewership, likes, and engagement in our social media, it attracted people who we would like to be friends with (partners like Domino Pizza or Pizza Hut) to sponsor our next party.
Each of the 8 members will have a 12.5% slice of the pizza (100/8)%. If the party continues and finally ends well, each member will finally gain fame, more money, more friends and potential future endorsement. Also, each of the initial members with his 12.5% ownership will feel more satisfied compared to when they had 25%. Indeed, less is more😎.
You noticed how the party (startup) increased in size with new members joining with unique values and skills improving the end party (customers) experience and getting a slice of the pizza. These shares of slices are equity ownership.
You can follow me on LinkedIn https://shorturl.at/rx5oK where I share my learnings on anything Venture capital, Startups, Data science and Marketing and any other thing around startup that interest me.
Or Twitter via https://bit.ly/4ccPWMX where I share short random thing around my interest.
#vcfunding #dilution #startup #angelinvesting #equityfunding
Thanks for reading Ajah’s Substack! Subscribe for free to receive new posts and support my work.