The Normal Level of VC & CEO Ownership at Exit

Recently we wrote a post which looked at the level of ownership and salary of CEOs at the point when their company went public (“The Reasonable Level of CEO Ownership & Salary for a Startup”).  It was a popular post so we decided to take it a step further, looking at the level of VC ownership of those same companies at the time they went public.  The data and observations are below. 

 

 

 

Year of

CEO

VC

 

Company

CEO

S1

Ownership

Ownership

Major VC

Fitbit

James Park

2014

10.90%

56.90%

Foundry Group, True Ventures, Softbank

GoPro

Nicholas Woodman

2014

42.50%

33.76%

Riverwood Capital, Foxteq, Sageview

Box Inc

Aaron Levie

2014

4.10%

65.00%

DFJ, US Venture Partners, General Atlantic, Scale, Bessemer, Meritech

Hubspot

Brian Halligan

2013

4.90%

66.30%

General Catalyst, Matrix, Scale, Sequoia, Charles River

LinkedIn*

Jeffrey Weiner

2010

4.10%

39.80%

Sequoia, Greylock, Bessemer

Marketo

Phillip Fernandez

2012

6.60%

85.50%

InterWest, Storm, Mayfield, IVP, Battery

Netsuite

Zachary Nelson

2006

3.60%

79.20%

Larry Ellison (Oracle), Starvest

SalesForce

Marc Benioff

2003

31.60%

16.20%

Halsey Minor (CNET), Attractor Funds

Wix.com

Avishai Abrahami

2013

4.60%

78.40%

Mangrove, Bessemer, Insight, Benchmark

WorkDay

David Duffield

2012

53.40%

21.10%

Greylock, NEA

Zendesk

Mikkel Svane

2013

7.10%

52.00%

Charles River, Benchmark, Matrix

Atlassian

Scott Farquhar

2015

37.20%

12.70%

Accel

Shopify

Tobias Lutke

2015

14.62%

42.15%

Bessemer, FirstMark, Klister, Omers,

Xactly

Chris Cabrera

2015

6.60%

67.40%

Rembrandt, Bay Partners, Alloy, Key, BridgeScale, Outlook

MindBody

Richard Stollmeyer

2014

11.20%

64.80%

Bessemer, Catalyst, IVP, W Capital, JP Morgan

Appfolio

Brian Donahoo

2014

36.50%

48.40%

IGSB, BV Capital

Splunk

Godfrey Sullivan

2011

8.10%

71.50%

August, Sevin Rosen, JK&B, Ignition

ServiceNow

Frank Slootman

2011

5.58%

77.65%

JMI, Sequoia, Greylock

BazaarVoice

Brett Hurt

2011

14.30%

52.70%

Austin Ventures, Battery

HortonWorks

Robert Bearden

2013

6.80%

62.00%

Benchmark, Yahoo, Index, Teradata, HP

 

 

 

 

 

 

Median

 

 

7.60%

59.45%

 

Average

 

 

15.72%

54.67%

 

*LinkedIn - Note that Founder Reid Hoffman owned 21.4%

 

 

 

 

 

-The table shows that upon going public/exit, the median and average ownership of the VC and strategic investors was 59.45% and 54.67%.  What the data is telling us if you want a truly large exit similar to the tech bellwethers above, it’s not uncommon to raise outside capital thereby ceding significant ownership, and even control, to VC.  Look at your relationship with a VC as a marriage: you’re going to love each other, sometimes you’ll hate each other, and you’re going to fight (a lot), so it’s critical to pick investors you really enjoy working with. 

 

-There are a number of VC that show up repeatedly including Bessemer, Benchmark, Charles River, Metrix, Greylock, and Sequoia.  VC tend to invest in packs, so watching what these VC and others do in the market can give you a sense of what’s resonating with large investors.

 

-Atlassian, Salesforce, and Workday are truly standouts in that their founders were able to build massive businesses without giving up much ownership to VC.  They did this primarily by being cash efficient and building real business that generate cash (each generated free cash flow of $100mm, $1.6bln, and $259mm last year).  Cash efficiency and generating cash are two goals that any entrepreneur should strive for not only to build a more recession resistant business but also to preserve equity. 

 

-The spread of CEO ownership levels is wide, ranging anywhere from 3.6% on the low end to 53.40% on the high end.  The median ownership level is 7.60% which given the size of these companies, makes every founder a millionaire many times over.  If you’re a founder at a Series A level business, don’t overly stress about dilution if your ownership is low: a good board needs to refill the option pool with every round of which you should be allowed to take part.  Even founders at the IPO/Exit level take significant share issuances the year before the IPO (the CEO of Fitbit was issued $7mm+ worth of options before exit). 

 

In conclusion, build a business as cash efficiently as possible.  If you’re looking for a truly large exit, understand that taking on VC and even ceding control may be a necessary, so taking the time to make sure you’re really partnering with the right, honest investors is critical.  Make sure to ask for plenty of referrals to past/current portfolio company CEOs (you tell the VC who you want to talk to) and understand how they’ll behave, especially when things go wrong.  

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