Startup founders lose grip amid heavy Series A dilutions

An increasing number of Indian startup founders are giving up over 40% equity till their Series A rounds, prioritizing growth capital over long-term ownership. These sizeable fundraises fuel rapid expansion but also dilute founders’ control, often curbing their influence in shaping the company’s future.

According to startup data intelligence platform TheKredible, founders of around 10 early-stage startups have diluted more than 40% stake in their recent fundraises. The list includes Dale Vaz’s stock trading app Sahi, fintech firm DPDzero, semiconductor startup Netrasemi, home services platform Pronto, agritech startup Eeki, and several others.

Stock trading platform Sahi raised $10.5 million in its Series A from Accel and Elevation Capital at a $60.5 million valuation. Co-founders Dale Vaz and Manish Jain holds 47.17% post-Series A, diluted over 40% across two funding rounds.

Similarly, the founders of DPDzero and Netrasemi have diluted more than 40% stake by the time they reached their respective Series A rounds, raising $7 million and $12.5 million, respectively. Their valuations also rose sharply, with DPDzero’s valuation doubling to around $31 million and Netrasemi’s soaring 6.6 times to reach $74 million.

In similar cases, Ziffi Chess co-founders Akshat Bansal and Aditya Dubey together retained a 53.54% stake following the startup’s $5 million Series A round led by Tanglin Venture Partners. Home services startup Pronto’s founder now holds about 54% stake and diluted over 40% across two funding rounds.

Despite the heavy dilution, these startups saw a sharp jump in their valuations. For instance, aerospace startup Sarva Aviation’s valuation soared 7.5X to Rs 420 crore in its Series A round, up from just Rs 56 crore in its Seed round. Co-founders Adrian Schmidt, Rakesh Gaonkar, and Shivam Chauhan collectively retained around 52%.

Rocket.new (formerly Dhiwise), an AI-powered no-code platform, saw its valuation double to Rs 545 crore post-allotment. However, after the conclusion of its Series A, co-founders Vishal Virani and Rahul Shingala were left with just 36% stake. Similarly, co-founders of agritech startup Eeki left with 29.66%, composite tech startup Fabheads with 28.77%, and AI-native sales and ecommerce platform Wizcommerce with 35.86% post-Series A.

The accelerated founder divestments could be linked to multiple reasons. Thus, we see that the Ziffi Chess founders are both Ex-Blinkit, having presumably cashed in well there, and learnt a thing or two about raising funds and diluting stakes. Sarva Aviation’s co-founders also come with serious work experience, and probably value the runway the funding provides over the risk of uncertainty in the aviation business, never one for the faint hearted. 

For the renamed Rocket.new, it is possibly the same fear of the sheer pace of changes in the sector that prompted the founders to raise quickly and dilute more than one would usually expect within 4 years of the firm starting up.

The bottomline is that the good part is that in none of these cases can one attribute the dilutions to lack of experience of the founders. It seems to be more a case of opting for a longer runway at a period of higher uncertainty than many would have bargained for possibly. That is not a surprise, as any founder would tell you, and to that extent, one hopes this does not turn into a trend. A 40% or more dilution by Series A can leave very little for the founders if the firm survives to Series D or beyond. A booming stock market has helped cover up missteps in dilution for many founders by allowing them to help themselves to generous stock grants, but when the tide turns, many might be left wondering if it has all been worth it.