As a business founder, you would know that keeping more equity in your business is often easier said than done. In every venture’s growth journey, there are moments where your business needs capital and your bank is unwilling to pony up. So why not trade equity for capital and take your venture to new heights? In this blog, we answer that question; exploring the pitfalls of too much equity funding, and why a balanced approach that maximises your equity stake is a winning strategy. Then, we unpack five simple ways to keep more equity, reach your business goals, and avoid the pitfalls of overdilution.
What is equity, and why does it matter?
In a nutshell, equity is a company’s assets minus its liabilities. It describes the monetary value of owning a business for shareholders.[1] Equity matters because a founder’s fortunes are inextricably linked to it at every stage of the start-up’s journey.
Cautionary tales
When we think of successful founders, household names, such as Jeff Bezos and Mark Zuckerberg, might spring to mind. Both started small and went on to attract investors, growing their companies into trillion-dollar businesses. Although Bezos and Amazon, and Zuckerberg and Meta are stereotypes for investor-backed start-ups, these tech bros are the exception, rather than the rule. Steve Jobs was famously fired by his investor-backed board at Apple in 1985.[2] Indeed, Silicon Valley is littered with founders unceremoniously booted from the companies they started. [3] [4] But being shown the door is not just a Silicon Valley hazard. It happens all over the world, including Australia, and it’s not the only equity-related pitfall.
Leaving empty-handed
Founders unwittingly making one-sided deals favouring investors can also result in them giving away their payday when they exit the business. The $559 million acquisition of the daily fantasy sports platform FanDuel by Flutter Entertainment is a prime example.[5] It left the founders with nothing and should put any start-up that’s courting investors on notice.
Tunnel vision
Often, founders can see equity as the only card they have, trading it for capital to fund their innovation goals. Sure, equity is effectively ‘free’ upfront. There are no interest rates, fees or charges. When it’s time to sell, you and your investors each take your cut, but if your venture fails, you don’t need to repay your backers. Equity funding grants you access to amounts of capital that you may not otherwise be able to access, and it can unlock your business growth and potential overnight. But if you’re not careful, the true price of diluting your shareholding could be far higher than you expect, even if you’re the controlling shareholder.[6] So let’s look at five ways you can keep more of your equity as your business grows.
Five ways to keep more equity
1. Target non-dilutive finance as a funding source
Debt financing is a capital source many founders write off as a non-starter, especially if their bank has rejected their loan applications. But times have changed. These days, there are many lenders that will lend money to pre-revenue start-ups and scale-ups working towards profitability.
Crowdsourced finance
Crowdsourced finance from peer-to-peer lenders can be a smart choice for early-stage, innovation businesses, offering them access to unsecured and secured loans.
Revenue-based finance
If your business is generating steady income, revenue-based finance is another way to smooth your finances. This lending option will see you receive your sales as a lump sum upfront in exchange for the lender taking a percentage cut.
R&D finance
If you’re doing research and development (R&D) you may want to consider R&D finance. With crowdsourced and revenue-based finance, terms and conditions apply depending on your business circumstances. But with R&D finance in the form of Radium Advances, your business only needs to be eligible for the Federal Government’s R&D Tax Incentive (R&DTI) refund to apply. Radium Advances let you access your company’s R&DTI refund early, and they’re non-dilutive, so you don’t have to exchange a share of your business for capital. For founders, they’re a clever way to smooth cash flow and keep more of your equity in the business you’ve worked so hard to build. You can also decide when and how frequently you access your capital, so you can tailor your funding to your R&D needs.
2. Bootstrap your business for longer
Bootstrapping is when founders invest their personal finances, sweat equity (hard yakka), and the company’s revenue into the business. Bootstrapping is usually the go-to funding source for most founders when they first start out. But many founders overlook it as a funding source as their venture grows. If bootstrapping is the central pillar of your financial strategy, you bear the financial risk, and you could be constraining how quickly your business grows. But the upside is that you stay in control. You won’t have to share the fruits of your labour with investors or use them for loan interest payments.
Lean into self-financeable growth
Self-financeable growth (SFG) is the amount of growth a scale-up can achieve under its own steam, using the revenue it generates. Building your start-up from the ground up with bootstrapping is one thing. Scaling it is a whole different ball game, and you’ll need to consider the working capital, facilities, equipment, and operating expenses your venture will require. Many of your company’s cost factors will be sector specific. While it may not be feasible or desirable to use SFG for a capital-intensive start-up as it scales, founders of these businesses can still lean into SFG to limit the amount of equity they give up.
For more on bootstrapping and SFG, read our articles: The cash KPIs for scale-ups every founder should know and How to extend your start-up’s runway with bootstrapping.
3. Control your burn rate
Burn rate measures how quickly your business consumes capital. If you’re a non-revenue or loss-making start-up, calculating your burn rate will tell you how much runway you have left before you run out of cash. Cutting unnecessary expenses, running with a skeleton staff, imposing a hiring freeze and tweaking your accounting policies are smart ways to make your capital last longer. And if it’s possible to, you can always double down on growing your revenue. Even if you already have an investor on board or plan to attract a backer, turning over every penny will help you keep more of your equity. For more tips on using your burn rate to extend your runway and increasing the time between funding rounds, read our article, How to slow your burn rate and extend your runway.
4. Avoid relying on stock-based employee compensation
Another way to keep more equity is by tightening the reins on stock-based employee compensation. Stock-based compensation is where companies give their employees shares in the business rather than paying them cash. Start-ups and scale-ups tend to use this to attract and retain the top talent they need. But it can be a double-edged sword. If you overuse stock-based compensation, you can overdilute your company’s equity and whittle away your return when you exit the business. Worse still, if you need to raise capital, having too much stock-based employee compensation can scare off would-be investors.[7]
5. Watch the fine print
When you attract an investor, make sure you’re all over the deal like a rash. Too many founders pop the champagne corks and high-five each other when they close a funding round. But they might think twice about celebrating if they knew what they signed up for. As investor and entrepreneur Mark Cuban says, ‘Raising money isn’t an accomplishment, it’s an obligation.’ [8] The start-up world’s dirty secret is that founders can raise millions, build successful businesses, only to exit with nothing. Liquidation preferences are often the reason why. These dictate who gets paid first and how much when a company is sold, merged or liquidated. It’s how investors like venture capitalists protect their investments, and it can get complicated. [9]
Liquidation, participating preferences and seniority
There are standard liquidation preferences, where investors receive their original investment back before common shareholders such as the founders see a cent. Then there are multiple liquidation options for riskier ventures where investors receive two or even three times their investment before anyone else gets a look in. And it doesn’t end there. There are also participating and non-participating preferences. If investors have participating terms, it means that after they have their one, two, or three times return on their investment, they receive a share of the common shares equal to their percentage ownership of the business. Seniority dictates which investors with liquidation preferences will see their money first; for example, post-Series A investors will often be at the front of the queue.[10]
Run the numbers
The reality is that your business may not sell at the top of the market. You may have raised more capital than the company is sold for. In that case, your investors are protected, but you’ll leave empty-handed. Equally, even if you sell your business at the top of the market, if there are multiple liquidation preferences, your much longed-for payday could still pass you by. So stress test the numbers in any investor deal and model a range of exit scenarios, so you know how the cards will fall in different market conditions.
Actions paying dividends
Following some or even one of our five tips will help you keep more equity. There are many lenders that will lend money to pre-revenue start-ups and scale-ups working towards profitability. So don’t close the door on your non-dilutive debt financing options, such as R&D finance. Take a second look at bootstrapping and SFG. Depending on your business sector, you may be able to lean into these more and for longer than you realise and keep more of your equity. Watch you burn rate like a hawk and don’t rely on stock-based compensation as your main lever to attract and retain employees. And if you do accept investor backing, do your due diligence and pay attention to the fine print in any deal you strike. If you follow our tips, it could pay dividends in the future.
[1] Investopedia. (n.d.). Equity. [online] Available at: https://www.investopedia.com/terms/e/equity.asp#toc-how-shareholder-equity-works.
[2] Weinberger, M. (n.d.). This is why Steve Jobs got fired from Apple — and how he came back to save the company. [online] Business Insider. Available at: https://www.businessinsider.com/steve-jobs-apple-fired-returned-2017-7?op=1.
[3] Power, K. (2025). When Founders Lose Control: 10 Entrepreneurs Ousted by Investors. [online] Motivus Coaching LLP. Available at: https://www.motivuscoaching.com/post/when-founders-lose-control-10-entrepreneurs-ousted-by-investors.
[4] Bort, J. (2014). How Cisco’s Founders Were Ousted. [online] Business Insider. Available at: https://www.businessinsider.com/how-ciscos-founders-were-ousted-2014-12.
[5] Felix (2024). FanDuel’s $559 million sale: how founders and employees ended up with nothing. [online] Felix. Available at: https://felixonline.co.uk/articles/fanduel-founders-empty-handed/.
[6] Anon, (2023). ‘Owning 51% Gives Founders An Illusion Of Control.’ – Guy Kawasaki. [online] Available at: https://thevcfactory.com/owning-51-gives-founders-an-illusion-of-control-guy-kawasaki/.
[7] Long Term Mindset (2024). Cash Flow Statement Red Flags (3 Warning Signs). [online] YouTube. Available at: https://www.youtube.com/watch?v=WOORGfJdlK8
[8] Crook, J. (2020). Mark Cuban: ‘Raising money isn’t an accomplishment, it’s an obligation’ | TechCrunch. [online] TechCrunch. Available at: https://techcrunch.com/2020/05/01/mark-cuban-raising-money-isnt-an-accomplishment-its-an-obligation/
[9] Mansoori, H. (2025). Why Founders Exit With Nothing—And How to Avoid It. [online] DYNACEO. Available at: https://dynaceo.com/founder-exits-nothing/
[10] Hinckley, M. (2025). Liquidation Preference: A Guide to VC Deal Terms. [online] Growth Equity Interview Guide. Available at: https://growthequityinterviewguide.com/venture-capital/venture-capital-term-sheets/liquidation-preference
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