Recently joined and early-stage startup which has been 100% self funded to date. I’m joining as an executive and recognizing that the core team is not yet built-out, I’m suggesting to the founders that they take their dilution up-front and set aside a share-option pool to be used to build-out the core team. This serves three purposes; 1) protects me and others from further (unknown) dilution as we bring on new team members, 2) it avoids the endless negotiations and re-calculation of the cap table for every new hire, 3) it provides a pool of shares which can be used as compensation for project-based consultants.

Does this make sense?

Any rational investor would love it if you did this – it’s “putting your money where your mouth is,” and validates the price that they are paying as not being too high. From a game theoretic perspective, it also gives you the same information rights as your investors if you ever leave the company (although information rights often have a minimum ownership threshold, so see what that is), and it might give you tie-breaking power in certain situations (say, if the rest of your Series A is divided across two investors).

However, it does put you in a bit of a conflicted situation on the valuation, so have one of your other founders negotiate the valuation with the Series A, and you just tag along.

Also, make sure that you only signal your readiness to do this once you are *sure.* If you say you’re going to do it and don’t follow through, you’ll be sending a very negative signal on the valuation.

Finally, as a matter of diversification, I would advise against doing this unless the amount is not very consequential to you or unless you believe that the company is being undervalued in this round. You probably already have enough stock in the company and should be diversifying / hedging.

I’m a co-founder at OnCard Marketing. We did a convertible note to raise our seed round and will probably begin the Series A process over the next 4 months. I have recently come into some new-found wealth that I would like to invest in the Series A along with existing and new investors to minimize dilution to my founders common equity. I understand I will then own two classes of stock and have similar rights on my preferred stock as my investors.

Question: Will Series A investors want/allow me to do this?

Thanks!

BTW, not that I am carried away with math, but for the sake of “the rest of us” non-MIT geniuses, it would be easier (and laymanly more digestible), if you first calculated the effective share price as simply as:

s = (p – t.0)/x (1)

Thus, it follows that

n = t.o/s (2)

Of course, if in equation (2) we plug in the value of s in equation (1), we get to your equation

n = (t.o.x)/(p – t.o)