Unfortunately sometimes ownership structure can make it impossible to pursue an investment. Decisions that have been taken in the past are often difficult to change, if at all.
Often one or several of the following challenges arise
founders and management are too diluted and don’t hold significant shares;
a founder has left the company but still owns a significant amount of shares;
strategic investors hold a significant minority or even a majority;
a long list of small (and not pooled) investors.
Hence to avoid risks arising from (a wrong) shareholder structure, we strongly recommend:
plan your cap table not only for the next round but over the company’s lifetime and make sure that founders hold enough shares to be motivated as the company grows. Ideally founders still have over 50% after the Series A round.
when taking money from early investors, educate also them about the importance of a healthy cap table
set up a rigorous vesting plan, not only for your employees but especially for the founder team so that unforeseen events can be handled well
when considering investments from strategic investors, make sure their goals are aligned with yours (this usually means a minimum of two strategic investors as a balance, below 10% equity each, no veto or preemptive rights and no board seats)
To model the shareholder structure and run through different scenarios (especially with multiple rounds, convertible loans etc. involved) you are very welcome to try our cap table template