A founder raising a seed round typically gives up 15% to 25% of the company's equity in exchange for the capital in that single term sheet. Later rounds each cost another slice, usually in the same range, so the percentage lost in any one round matters less than how the ownership stack adds up across every round a company raises. That 15% to 25% band is a market convention, not a rule written anywhere, and it holds because of how venture funds build portfolios: a lead investor generally wants a stake large enough to matter if the company succeeds, without taking so much that the founders lose the motivation to keep building. A term sheet that falls far outside that band, in either direction, is worth examining closely before signing.
Table of Contents
- Why the 15%-to-25% Range Exists
- What Determines Where You Land in the Range
- How Dilution Compounds Across Multiple Rounds
- The Option Pool's Hidden Dilution
- Warning Signs a Term Sheet Is Outside Normal Range
- Frequently Asked Questions
Why the 15%-to-25% Range Exists
Venture funds operate on a small number of big outcomes paying for many failures, so each investment needs to be large enough, as a percentage, to move the fund's returns if the company becomes a winner. A stake below roughly 10% rarely moves the needle for a fund that needs a handful of major exits to return its capital, which is why many lead investors set a floor on the ownership they target. The upper boundary comes from the founders' side of the trade.
A round that takes much more than 25% in one step leaves founders with a smaller share earlier than the math of future rounds can comfortably absorb, since each subsequent raise dilutes everyone again. Investors who expect to back several more rounds also prefer founders retain enough ownership to stay motivated through the years a company takes to reach an exit. The range is widest at seed stage and tends to compress slightly as a company matures and has more negotiating leverage from revenue or growth metrics. A company with competing term sheets, or with a product already generating revenue, can often negotiate toward the lower end of the range or secure a higher valuation for the same dollar amount raised.
What Determines Where You Land in the Range
The investor's target ownership is usually the starting point of valuation math, not the output of it. A fund that wants to own 20% of the company backs into a valuation by dividing the amount it plans to invest by that target percentage, meaning the round size and the percentage sold are often decided before the founder's spreadsheet enters the conversation. A founder's leverage over where they land depends on a few concrete factors: A round sized to exactly match a 12-to-18-month plan, rather than padded for comfort, keeps dilution closer to what the milestone actually requires.
- Competing interest from multiple investors, which lets a founder negotiate valuation up or dilution down.
- Revenue, user growth, or other traction that reduces the perceived risk an investor is pricing in.
- The amount of capital actually needed to hit the next milestone, since raising more than necessary increases dilution without adding leverage.
- The founder's willingness to walk away, which only works if there is a credible alternative source of capital.
How Dilution Compounds Across Multiple Rounds
A single round's percentage is only part of the picture, because most startups raise several rounds before any exit, and each one dilutes the founders again. A founder who starts with 100% ownership and gives up 20% at seed, then 20% at Series A, then 15% at Series B is not left with 45% ownership; the math compounds, since each later round takes its percentage out of a smaller remaining pie. Using round numbers, a founder starting at 100% who sells 20% at seed is left with 80%.
If the Series A investor then takes 20% of the post-seed company, the founder's share drops to roughly 64% of the total, not 60%, because the 20% is taken from the 80% the founder still held, and an option pool carved out for employees typically comes out of that same pie as well. By the time a company has raised seed, Series A, and Series B rounds, founders often hold somewhere between 30% and 50% of the company, even though no single round looked unusually large in isolation. This is why the relevant question for a founder is rarely "what will this round cost me" in isolation, but "what will my ownership look like after the rounds I expect to need between now and an exit." A plan that assumes only one or two more raises after the current one should price in each round's expected dilution before agreeing to the current one.
The Option Pool's Hidden Dilution
Term sheets frequently require the company to create or expand an employee option pool — shares reserved for future hires — immediately before the new investment closes. Because this pool is carved out of the company's existing equity before the new money comes in, its cost falls entirely on the current shareholders, meaning the founders, not on the incoming investor.
A term sheet that states "20% investment at a $10 million valuation" can understate the real dilution if it also requires a new 10% option pool carved out pre-money. The founder effectively absorbs both the investor's 20% and the pool's 10% from their own pre-existing stake, while the investor's post-money ownership stays exactly at the stated 20%. Reading the term sheet's capitalization table line by line, rather than just its headline percentage, is the only way to see this before signing.
- Confirm whether the option pool is sized for the current round's needs or padded for multiple future rounds.
- Ask whether the pool refresh is calculated pre-money (founders absorb it) or post-money (shared with the new investor).
- Compare the pool size against actual hiring plans for the next 12 to 18 months rather than accepting a round number.
Warning Signs a Term Sheet Is Outside Normal Range
A few signals suggest a term sheet is asking for more than the standard range justifies, independent of the stated percentage: None of these appear as a single "percentage lost" line item, which is exactly why they are easy to miss when a founder focuses only on the headline ownership number in a term sheet summary.
- A single round demanding more than 25% to 30% ownership, especially at seed or Series A, without a corresponding reason like unusually high risk or a down round.
- Liquidation preferences stacked above 1x, or participating preferred structures, which increase the investor's effective claim on proceeds beyond their ownership percentage.
- An option pool expansion sized well beyond the hiring plan the company has actually described to investors.
- Anti-dilution provisions that protect the investor fully against a future down round while leaving founders to absorb the entire hit.
Frequently Asked Questions
Does the 15%-to-25% range apply to every funding round, or just seed?
It applies most consistently to seed and Series A; later rounds can fall outside it depending on the company's growth and negotiating position.
Can a founder negotiate the option pool size in a term sheet?
Yes — founders can push back on an oversized pool or ask that the refresh be calculated post-money so new investors share the cost.
Why does ownership after three rounds often land below what simple subtraction suggests?
Because each round's percentage is taken from a shrinking remaining share, not from the original 100%, and option pool expansions compound the effect.