
Ask HN: Why do tech startup owners do not own the majority of their stock? - codesternews
Why tech startup owner do not own majority(51%) stocks?<p>What&#x27;s then their motivation? It means they are just employee and can not take major decisions.
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funerr
If there aren't any constraints like VC funding, co-founders, employees (that
want equity) then yeah, it would be pretty logical to keep more than 50%.

In reality, you need to make compromises, it's better to have < 50% of
something rather than having > 50% of nothing.

BTW: They probably still have "decision power", because they have a board
seat, which means they have influence over the company and are not just an
"employee" as you stated.

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onion2k
Don't get hung up on 51%, or 50%+1 share. Not all shares are equal. A company
can issue a single voting share and 99 non-voting shares, and that gives the
owner of the 1 voting share complete control despite only owning 1%. It's much
more complicated than any simple example can illustrate.

To answer the question though, founders sell equity to raise money. When
you've sold 50% the next time you raise (or give stock to a new employee, or
reward a mentor, etc..) means you're going to own less than half the company
you started.

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JimboOmega
I still don't exactly understand what the value of a non-voting share is. What
rights does it confer, exactly. Why do I want to own it?

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henryfjordan
You still own a share of the company. If they pay dividends, you get one.

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Viliam1234
But if you can't vote about whether they pay the dividends... what is
preventing the owner of the voting share to simply never pay dividends, and
transfer the profit to their own pocket using some other method, for example
giving themselves a really high salary, or starting a new company and
transferring the profits there?

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henryfjordan
When you are making decisions on behalf of a corporation, you legally have to
make the best decision for the shareholders. There's a lot of wiggle-room in
that, but the courts will see through the most egregious stuff.

So if you own non-voting shares and the voting shares decide not to give
dividends and instead buy a useless corporate yacht for themselves to use, you
can sue.

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blihp
I suspect there are two main reasons: 1) Dilution comes with the game when
going the VC route (which founders may or may not have realized ahead of time)
and once you've started down that path, it's hard to reverse course since you
often don't have the cash to buy out investors. So their ownership gets
diluted away to obtain funding to keep the lights on and/or with the hopes of
cashing out down the line. 2) The plan was always to cash out ASAP. Many
startups aren't being built for the long run and more than a few are just
attempts at a quick cash grab before investors figure it out so they don't
care that they get diluted as long as they get a payday (a.k.a. a 'liquidity
event') since that was the plan all along.

You are right that once you lose control, you are just an employee and there
are many cautionary tales about what can happen from losing control to getting
booted out of the company you founded. As a result, there are some companies
(notably Google and Facebook) where the founders made sure to retain control.
So it's just a matter of priorities and deciding what one is willing to put up
with to achieve their objectives.

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bb88
> Many startups aren't being built for the long run and more than a few are
> just attempts at a quick cash grab...

From a VC's perspective they would rather take a loss on a short term
investment than waiting 15 years for your investment to pay off.

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aetherson
If there are two shareholders, one of whom has 51% and the other of whom has
49%, then there are meaningful ways in which the minority shareholder is not
really a decision-maker.

It's pretty different if there are 10 shareholders and you hold let's say 40%
of the shares, in which case you might only need one or two people of nine to
agree with you.

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Tomte
Because they sold shares to investors for money they dearly needed to build
the company.

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PopeDotNinja
When you found a startup and take VC/angel/investor money, the point (from a
financial perspective) is the exit. If you're planning to make $10 million USD
during some liquidity event, does it matter if your share was $10 million
stake was 1% or 100%?

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icedchai
Of course it matters. In a bad/mediocre exit scenario, most of the money goes
to pay back preferred investors. Common winds up with scraps.

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memn0nis
They do, when they put in 51% of the capital needed to grow the business
(i.e., they bootstrapped the company). In each funding round you can generally
expect 15-25% dilution, and then employees will receive options as well. By
series B-C most founding teams will own less than 50% of the business.

Also, remember that different shares come with different voting rights. You
can not own 51% of the economic value of a company but still have 51% of
voting shares.

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drallison
The ownership of a corporation is apportioned by stock; control is apportioned
the same way modulo any side-agreements and restrictions. A tech startup
founder frequently does not own a majority of the issued stock because stock
has been traded to investors to provide working funds and capital and
allocated to key employees to ensure they have some skin in the game.

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SkyMarshal
Founders typically start out with majority >50% ownership, but over subsequent
funding rounds and employee stock options have to slowly give up ownership %.
How much they give up depends on their strength at the negotiating table every
fundraising round. The better the company is doing the less they have to give
up to close investment, and vice versa.

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majewsky
There is this old joke, where a businessman is asked why he's not mad about
his wife cheating on him, and he answers "It's better to own 50% of a valuable
asset than 100% of a worthless asset."

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seibelj
You are correct that it is indeed preferable to own 51% of the shares. Being
able to do that and raise the amount of capital you need, however, is the
tricky part!

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s1artibartfast
49% of a growing company is better than 51% of a failed company.

49% voting shares plus 51 other investors is still de facto control.

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nif2ee
because most founders are in the business of raising money not building
companies/making products

