I’m going to say something that might make you uncomfortable. That advice you’re getting about obsessing over dilution? It’s terrible. In fact, it’s probably the single most destructive, value-killing piece of advice in the startup world. I’ve seen it kill more companies than bad ideas, lazy founders, or tough markets combined.
After two successful exits and over 200 angel investments in companies like Anthropic, OpenAI, and Scale AI, I’ve seen this pattern play out again and again. A founder has a brilliant idea, a solid team, and early traction. They get a term sheet from a top-tier firm, but they get hung up on a few percentage points of dilution. They take a worse deal from a less helpful investor, and the company slowly withers and dies. All because they were focused on the size of their slice, not the size of the pie.
The Equity Trap
It’s a trap that’s easy to fall into. You’ve poured your heart and soul into this company. The equity feels like a measure of your worth. So when an investor wants a piece of it, it feels like they’re taking something from you. It’s a scarcity mindset, and it’s poison.
I remember when we were raising money for MovieLaLa. We had a chance to bring on Marc Benioff as an investor. The terms were dilutive, no doubt about it. We could have held out for a “better” deal on paper. But we knew that having Marc on our side was worth more than any percentage of equity. His advice, his network, his belief in us—that was the real prize. We took the deal, and it was one of the best decisions we ever made. We were later acquired by Gfycat, and I have no doubt that Marc’s involvement was a key factor.
Your Focus is Your Reality
What you focus on becomes your reality. If you focus on dilution, you’ll make decisions out of fear. You’ll raise less money than you need, you’ll hire cheaper talent, and you’ll move slower than your competitors. You’ll be playing not to lose, instead of playing to win.
When I started RemoteTeam, it was a crazy bet. The world wasn’t ready for remote work. We needed to move fast, to educate the market, and to build a world-class product. That meant raising a significant amount of capital. We were acquired by Gusto in just 18 months. If we had been stingy with our equity, if we had tried to bootstrap our way to success, we would have been a footnote in history.
Here’s what you should be obsessed with instead of dilution:
- The quality of your investors. Are they just a check, or are they a partner? Will they be in the trenches with you when things get tough? Can they make a call that will change the trajectory of your company?
- The speed of your execution. Do you have the resources to build, market, and sell faster than anyone else? In the startup world, speed is everything.
- The size of the opportunity. Are you thinking big enough? Are you taking enough risks? Are you building something that has the potential to be a category-defining company?
A Quick Math Lesson
Let’s look at the numbers. Say you have a company worth $5 million.
- Scenario A: You raise $1 million at a $5 million pre-money valuation. You sell 16.7% of your company. You now own 83.3% of a $6 million company. Your stake is worth just under $5 million.
- Scenario B: You raise $5 million at a $10 million pre-money valuation. You sell 33.3% of your company. You now own 66.7% of a $15 million company. Your stake is worth $10 million.
I know which scenario I’d choose. More dilution, but a much bigger outcome. It’s not about how much you own. It’s about how much what you own is worth.
The Bottom Line
Stop listening to the people who tell you to hoard your equity. They’re giving you advice for a small life and a small company. If you want to build something truly great, you need to be willing to give up a piece of it. You need to be willing to bet on yourself, on your team, and on your vision.
So the next time you’re looking at a term sheet, don’t just look at the dilution. Look at the partner. Look at the opportunity. And ask yourself: is this going to help me build a billion-dollar company? If the answer is yes, then sign the damn thing.
Frequently Asked Questions
How has this view evolved over time?
My thinking on most topics has changed significantly over the years. Early in my career, I held many conventional views that experience proved wrong. I try to update my beliefs when the evidence changes.
What experience informs this perspective?
This perspective comes from over a decade of building companies in Silicon Valley, two successful exits (RemoteTeam to Gusto, MovieLaLa to Gfycat), and investing in 200+ startups including Anthropic, OpenAI, and Scale AI. I write about what I've lived.
Do all experts agree with this view?
No, and that's fine. The best ideas in business are often contrarian. I share my perspective based on my experience and data, but I encourage you to seek out opposing viewpoints and form your own conclusions.
How can I apply this thinking to my own situation?
Start by identifying the core principle behind the opinion, not the specific example. Then ask yourself: does this principle apply to my context? If yes, test it in a small, low-risk way before going all in.