It’s said that the only certainties in life are death and taxes. In the life of a startup founder, the two certainties are that you will need more capital and that your ownership will be diluted.

So how can you ensure these things don’t completely negate the hard work and sacrifices you make as a founder to ensure your company a success? As a founder who’s built three venture-backed companies, and raised plenty of capital along the way, here’s some advice based on my experience:

Raise the money you need — and a little more

Investors in early-stage startups receive equity when a company has very little worth. Hence, every dollar they invest gives them a proportionally larger stake in your company. And that means the money you borrow in your company’s infancy will be the most dilutive. With this in mind, you’ll want to figure out an operating budget that’s lean but not so anemic that you will fail to achieve your goals.

When I heard Troy Henikoff speak at TechStars Austin in 2020, these are the cash outlays he said entrepreneurs should take into consideration when building their financial model:

Rent

Taxes

IT infrastructure

Manufacturing & warehousing [if applicable]

Salaries & benefits

Recruiting & training

Marketing (SEM, social media advertising, etc.)

Travel

Of course, this is only a broad overview of what you’ll need to consider. Every startup has different expenditures and will need to develop a custom financial model filled with finer details. Avoiding off-the-shelf templates is something Troy advocates for in a series of blog posts he co-authored with Will Little of Math Venture Partners. Another great primer on how to create a custom financial model comes from Wout Bobbink at EY.

Regardless of what your unique expenditures are, you’ll want to arrive at how much funding you’ll require for at least 12-to-18 months of operation. You’ll also want to consider how much of your expenditures can be offset by revenue, which can decrease the amount you’ll have to raise.

Thoughtful planning upfront will help you avoid the need for a bridge round, which would require further dilution. According to Silicon Valley Bank’s Lewis Hower, each round of post-seed funding could cost you between 20 - 30% of your ownership stake.

Keep your options pool small

Through my company, I meet a lot of technical solopreneurs. That’s obviously a great position to be in, as you can ship an MVP without giving equity to a technical co-founder or a CTO.

However, not everyone is in this position. Many founders will need hires that complement their skill set to get a company up and running. To safeguard equity, you’ll want to be conservative with your hires early on — for the same reason you want to be tight in your fundraising ask.

So how much of your ownership stake will you have to share with employees? For a CTO or CRO, it’s common to award between 1 - 2%. Other senior roles, like a Lead Engineer or Marketing Director, may receive half a percent in equity. As a general rule, most entrepreneurs will set aside 10 - 20% of equity for current and future employees.

Fight for the best terms possible

The best way to avoid unnecessary dilution is to get investors to sign a Simple Agreement for Future Equity (SAFE). This will allow you to put the valuation conversation off until later (preferably once you have reliable revenue numbers).

I’ve briefly written about SAFEs before, but what’s important to know in terms of dilution is that a pre-money SAFE is more founder-friendly. With a pre-money SAFE, each investor’s ownership percentage is undecided until you raise your next round. With this type of SAFE, everyone gets diluted simultaneously, and it’s math-driven vs. some arbitrary decision.

Post-money SAFEs, on the other hand, lock in an investor’s ownership percentage before the Series A (or some other qualified fundraising round). While this gives founders and investors a clearer idea of their ownership stake, the only person who gets diluted in a post-money SAFE is the founder. As such, it seems more punitive for entrepreneurs.

The valuation cap in either SAFE can offer you some protection, though. If a startup raises a priced round at a high valuation, it locks in a future equity stake. With a $10M cap, a SAFE holder would have the same ownership percentage regardless of whether $15 or $20M was raised.

If you’re forced into signing a term sheet instead of a SAFE, be on the lookout for super pro ratas. These give investors the right to expand their ownership stake in the future as a condition of their early investment.

Your ideal ownership stake

What can you expect to hold onto after a few funding rounds and an impending exit? There’s no standard answer, really. But if you’ve managed to retain a 15 - 25% ownership stake, you’ve done better than most.