How Much Ownership Does VC Typically Request In Series A

How Much Ownership Does VC Typically Request In Series A

Well here's the simple answer:

A few years ago, most traditional VCs always look to own 20% or more (typically at 20% rate) - but these days (based on CrunchBase), most VCs are targeting around 15% simply to make easier deals, co-investments with other VCs, getting Angels on board & so forth.

But let's look deeper into it:

"In reality, every VCs of a $100~200m+ fund will try to own at least 20% of every investment in their portfolio companies"
- Senior Investment Manager, SEA VC (apologies, the person would like to remain anonymous)

Why you'd ask? In most cases, they pretty much have no choice. Let's do the math;

  • Let's assume the VC managed to raise a $150m venture fund.
  • You need to return 3x to guarantee another fund.  Otherwise, the entity dies and the fees end.  So you need to return $450m.
  • You only make say 12-15 investments out of that fund.  And say half don't make it.
  • That means you only have say 6-8 ROI positive liquidity events to return $450m gross and a $300m profit.
  • That means, with only 6-8 profitable investments to return $450m gross ... 1-2 of them need to return at least $100m+ in profit to the fund.
  • That means 1-2 of them need to exit at $500m-$1b+ to return $100m+ at 15-20% ownership.
  • That means 5% ownership can't have a material impact in most cases (Uber, FB aside).

So the thing is most Traditional VC Firms even of a relatively modest size need to return at least 1-2 $100m+ chips (and many more, as the fund gets larger) out of a handful of investments.

That means you have to try to somehow own 20% or more, settle on 15%, and mostly give up below that or just use smaller investments as "options" on larger investments or brand-building exercises.

[Microfunds and smaller funds (say $50m) fund work on slightly different math, but still try to own 10% and end up with at least 7-8% as a minimum.  And late stage deals are different (at valuations of $X00M+) ... there you can own a lot less and still achieve the target returns, that's a different beast.]

Series A/B VCs that buy less than ~15% generally aren't really investing today, per se.  They are just trying to take an option on a future, later, larger investment.

What Do VCs Look For When Making An Investment

What Do VCs Look For When Making An Investment