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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 Explore every ambitious company in the UK Beauhurst is a searchable database of the UK’s most ambitious companies—from seed-stage startups to maturing scaleups and beyond. We collect and manually curate hundreds of data points on over 32,000 companies, so you can find, engage and win high-value clients, faster than ever before. Want to see the platform in action? Book a 30-minute demo below. beauhurst.com @beauhurst /beauhurst Book a Demo
