Understanding Founder Ownership in Growth-Stage Companies

CHART OF THE WEEK 📈

A few weeks ago, we looked at founder control in active early-stage equity companies. In the early stage, it was evident and expected that the majority of founders owned more than half of the company (82% to be exact).  But what happens when we break down the same metrics for the growth-stage active equity raises?

These companies have one (or more) of the following parameters: $1 million or more in annual revenue, a valuation at or above $50 million, and $5 million or more in prior equity raised. Many of these companies have accepted venture capital funding or are further on in development compared to the early-stage batch that we evaluated. When it came to founder ownership or voting power, we saw a few key takeaways among the 130 active growth-stage raises:

• 48% of founders in growth-stage companies maintain control over 75% or more of the company, compared to 60% of early-stage companies. 

• Similarly, 70% of founders control 50% or more of the company versus 82% of early-stage companies.

• Just 8% of founders control less than 25% of the company. Even at the growth stage, this may be a red flag that indicates the founders are not committed to a venture.

• Of the 62 companies where founders control 75% or more, 22 were fully under the control of the founder, meaning the founder(s) had 100% of voting power or ownership. This represents 17% of growth-stage companies. 26% of early-stage companies were under the sole control of the founder(s).

• Overall, we see slightly less founder control at the growth stage, consistent with later stages of startup development, especially as founders accept institutional capital.

Together with Fidelity Investments

Join the Startup Showcase in Chicago! 🌟

Experience the return of the Startup Showcase this Thursday, February 29th, with 5-minute live pitches from six startups (rated by KingsCrowd). Engage with the founders of Choose Your Horizon, Infinity Fuel Cell, SapientX, BuildClub, Dice Cream, and Pirouette Medical, and listen to a roundtable discussion from some of the brightest minds in venture and private investing.

Network with industry leaders and fellow investors in an event that's redefining investment opportunities.

📍 Location: Drive Capital, Chicago, IL

 📅 Date: February 29th, 6pm CT

PITCH REVIEW 💸

Brief: Valo is innovating in water transportation with hydrofoil electric vessels that are 90% more efficient than traditional gas-powered ones. Their Hydrofoil Technology Platform, enhancing speed and reducing drag, is set to revolutionize the industry in three stages, targeting personal watercraft and mid-sized and high-powered commercial systems. It’s raising $1.2M with a valuation cap of $50M and a minimum investment of $100.

Key People: Valo is led by Founder and CEO Edward Kearny. With a background in entrepreneurship and advisory at Snappr Inc., Kearny has proven strategic and innovative skills. He co-founded GownTown Pty Ltd and led creative and marketing strategies at TahDah Productions, GoFar, and The NSW Greens. His technical expertise is rooted in academic research on airborne lidar at UNSW Australia. Kearny's managerial prowess is evident in raising $13.16M and achieving two exits, along with participation in YCombinator and backing from notable VCs.

Interested in Valo? Access the deal report HERE 🔓📈

Summary

Here's what we like: Valo is a disrupter in the water transportation industry with its innovative hydrofoil electric vessels. By leveraging its Hydrofoil Technology Platform, Valo is entering the market with a software-enabled hydrofoil jet ski that brings riders balance and pleasure, all without avoiding noise and carbon emissions. The company's long-term vision is to develop mid-sized and high-powered commercial hydrofoil systems to decarbonize human and merchandise maritime transportation.

The company has secured $3.5 million in hydrofoil watercraft pre-sales and received $124 million in letters of intent from ferry groups, manufacturers, and Fortune 100 firms. This strong customer demand demonstrates the market demand for Valo's innovative solutions. Valo is well-positioned to capitalize on the growing demand for environmentally friendly transportation options by offering fully electric and highly efficient watercraft.

The company has a strong financial foundation, with prior rounds raising $5.7 million and a valuation of $20 million. Valo is backed by notable venture capital investors, including Soma Capital, Fifty Years VC, Climate Capital, and Metaplanet Holdings. The company's participation in the YCombinator accelerator program further validates its potential for success.

Here's what we don't: While Valo presents an innovative solution in the water transportation industry with its hydrofoil electric vessels, it faces market competition and revenue generation challenges. The company's direct competitors, including Candela, N30, and WaveFoil, also offer hydrofoil technology solutions, creating a slightly competitive landscape for Valo.

Moreover, Valo is still in the pre-revenue phase, with no users or partnerships established. While the company has secured $3.5 million in hydrofoil watercraft pre-sales and $124 million in letters of intent, the actual conversion of these commitments into revenue remains uncertain. The absence of a proven revenue stream raises concerns about the company's ability to generate sustainable financial growth in the future.

While Valo's hydrofoil technology platform has the potential to disrupt the water transportation industry, investors should be cautious, given the company's current lack of revenue and the competitive landscape it operates in. This investment carries risks related to market competition, revenue generation, and financial sustainability.

ON THE POD 🎙️

In this episode, Chris chats with Paul Allen, a serial entrepreneur best known for founding Ancestry.com. We learn about Allen's latest venture, Citizen Portal, an AI-driven platform designed to democratize government data access and enhance governance transparency. The discussion traverses Allen's entrepreneurial journey, the transformative potential of AI in politics, and the challenges and achievements in building a platform that empowers citizens with accurate government information.

Listen to the full episode here

STAFF PICKS 🌶️

Datagran

Datagran is revolutionizing the accessibility of machine learning for businesses of all sizes. Their patent-pending system simplifies machine learning implementation, allowing companies to integrate AI and advanced analytics into their operations without needing specialized skills. Datagran's approach is proven by its 9,000-strong customer base and impressive 30% three-month retention rate, highlighting the high demand for user-friendly machine learning solutions.

• Valuation Cap: $14 million

• Minimum Investment: $100

Equal Exchange (Debt)

Equal Exchange, a pioneer in alternative trade networks, is crowdfunding on CrowdFund Mainstreet to reinforce its mission of empowering farmers and consumers. Founded in February 1986 by Jonathan Rosenthal, Rink Dickinson, and Michael Rozyne, the company collaborates with small farmer co-ops, advocating for farmer-led programs to shape a democratic food system.

• Interest Rate: 3%

• Minimum Investment: $500

EquityMultiple

EquityMultiple is revolutionizing the commercial real estate investing landscape by making it accessible to a broader audience, traditionally the domain of institutional investors and the wealthy. Through its online platform, the company offers a range of carefully selected real estate investment opportunities, simplifying the process and bringing transparency to the market.

• Valuation Cap: $90 million

• Minimum Investment: $100