The seed round dilution red flag that makes most VCs pass immediately
“That's probably the biggest red flag.”
And that that makes it difficult because, you know, it's they're only gonna get further diluted from there. That's probably the biggest red flag. Like, usually, I like to see, as a rule of thumb, no more than, like, 20 to 25% dilution by the seed round. But, like, if they had a pre seed round with some advisers or friends and family and everything else, like, if that bucket is around 20 to 25%, that's healthy. Beyond that but and obviously, less is even better, but 25% to me is kinda like the cutoff. After that, I started thinking about, like, why why is it so diluted?
Yeah. No. I mean, I would be wondering the same thing, but I guess what do you do about it? Right? Is there a way to actually clean it up? How do you go about remedying that situation?
It's very hard. A lot of investors will pass
About this clip
Yuri Sagalov from General Catalyst reveals his hard rule for evaluating startups: no more than 20-25% dilution by seed round. He explains why excessive early dilution is a major red flag and discusses the harsh reality that it's extremely difficult to remedy once it happens.
Why this clip
This clip provides a specific, actionable metric that VCs use to evaluate deals, giving founders clear guidance on cap table management.
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