How Much Equity Should I Offer My First Investors?

Most founders give away too much equity in their first funding round and spend years regretting it. I've seen this happen more times than I can count; someone gets excited about their first investor cheque, hands over 40% of their company for £50,000, and then realises they've left themselves almost nothing to work with for future rounds. Its a mistake that can literally kill your startup before it even gets going. The tricky bit is that there's no universal answer—what makes sense for a bootstrapped fintech app is completely different from what works for a healthcare startup that needs regulatory approval before launch. But here's what I know from working with dozens of startups over the years: equity is the most precious resource you have as a founder, and once its gone, you can't get it back.

I've built apps for startups at every stage of funding, from pre-seed companies running on credit cards to Series B companies managing complex cap tables with multiple investor classes. What strikes me every time is how many founders approach equity distribution without really understanding what they're trading away. They see the money coming in and think "brilliant, I can finally hire developers and get this thing built"—which is true, obviously—but they don't think about what happens when they need Series A funding and they're already down to 30% ownership. And that's before you factor in employee options, advisor shares, and all the other dilution that's coming your way.

The founders who succeed long-term are the ones who treat equity like a finite resource from day one, planning each round with the end game in mind.

This guide isn't going to give you a magic number because that would be useless, honestly. What it will do is show you how to think about equity distribution properly; how to balance getting the funding you need today whilst protecting your position for tomorrow. We'll look at real examples, common mistakes I've watched founders make, and the frameworks that actually work when you're sitting across from your first potential investor trying to figure out if 20% is reasonable or if you're being taken for a ride.

Understanding What Equity Really Means

Look, equity is basically ownership—but here's the thing: its not just about percentages on paper. When you give someone equity in your business, you're literally giving away a slice of everything you've built and everything it might become. That means future profits, control over big decisions, and a say in what happens if you ever sell the company. I've watched founders hand over 40% equity in seed rounds thinking "well I still have 60%"—but they don't realise they've just made it nearly impossible to raise future funding without getting diluted into oblivion.

Equity represents three main things you need to understand. First, there's the financial bit—when your company makes money or gets sold, equity holders get their share. Second is control and voting rights, which means investors can actually block decisions if they own enough. And third, its a claim on future value. If your app eventually becomes worth £10 million and you've given away 30%, that's £3 million that wont be yours.

What trips up most founders I work with is they think about equity in the present moment. They're bootstrapping, cash is tight, and someone offers £50k for 20% equity. Seems reasonable? Well... if you think your company might be worth £5 million in five years, you've just sold £1 million worth of future value for £50k. That's a terrible deal. But if you genuinely need that capital to survive and grow, it might be the right choice. There's no universal answer here—it depends entirely on your situation, your growth potential, and what alternatives you have for funding. Before making these decisions, many founders find it helpful to validate their business concept through proper feasibility studies to better understand their company's potential value.

The other bit that's a bit mad is how quickly small percentages add up. Give 5% to an adviser, 15% to your first investor, 10% to your second, and suddenly you're under 70% ownership before you've even launched properly. And you haven't even set aside an employee option pool yet, which investors will absolutely demand.

How Much to Give Away in Your First Round

Right, so you've built your app prototype and investors are starting to show interest. The big question everyone asks me is: how much equity should I actually give away? From working with dozens of app startups through their first funding rounds, I've seen founders make the same mistakes over and over, and honestly, it's usually because they don't understand the maths behind future dilution.

The standard range for a first funding round sits between 10-25% of your company. But here's the thing—that's a massive range, isn't it? Where you land depends on how much money you're raising and what your pre-money valuation is. I've worked with a fintech startup that gave away just 12% for their seed round because they had solid traction (15,000 active users) and multiple investors competing. Compare that to an e-commerce app we built where the founders had to give up 22% because they needed more runway and had limited revenue to show.

The trap most founders fall into is thinking only about this round. You need to look ahead. If you give away 30% now, then another 25% in Series A, you're already down to 45% ownership—and that's before you've factored in your team's equity pool. I always tell clients to work backwards from where they want to be after three funding rounds, then figure out what makes sense for round one. This is especially important if you're developing an enterprise app that needs significant executive approval and longer development cycles.

Keep your first round between 15-20% if possible. This gives you enough room for at least two more funding rounds whilst maintaining meaningful founder ownership. If an investor pushes for more than 25% in a seed round, its usually a red flag that your valuation is too low.

Typical First Round Equity Stakes

One healthcare app we developed had founders who gave away 35% in their first round because they were desperate for funding. By the time they reached Series B, they owned less than 20% of their own company. That's demotivating, and investors in later rounds noticed it too. Your ownership stake signals your commitment; if its too low too early, it raises questions about whether you'll stick around when things get tough.

Common Mistakes Founders Make with Early Equity

I've watched too many founders give away their company before they even got started, and its always the same story—they were so excited to get that first bit of interest from investors that they didn't stop to think about what they were actually signing away. The biggest mistake? Giving away too much too early. I worked with a fintech startup a while back who gave 40% to their seed investors because they thought that was just "how it works." By the time they needed Series A funding, they had barely 30% left between the three co-founders, which made future investors nervous about their commitment to the business. Not great.

Another massive one is not setting aside an employee option pool before taking investment. Here's the thing—investors will often insist on a 10-20% option pool, but if you create it after they invest, it dilutes only the founders, not the new investors. I mean, that's a proper sting if you're not expecting it. Always negotiate the option pool into your pre-money valuation so everyone shares the dilution fairly. This is particularly important when recruiting developers in competitive markets where equity compensation plays a major role.

The Most Expensive Mistakes

Then there's the "giving equity to everyone who helps" trap. Sure, that developer who built your MVP deserves compensation, but handing out 5% here and 3% there adds up fast. I've seen cap tables that looked like confetti—dozens of tiny shareholders who contributed early on but aren't involved anymore. It makes everything harder later; every decision needs more signatures, due diligence takes longer, and frankly it looks messy to serious investors. If you're concerned about sharing your idea with developers, there are ways to protect your intellectual property without giving away equity unnecessarily.

Not having a vesting schedule is another classic error. Even co-founders should vest their equity over 3-4 years with a one-year cliff. I worked on an e-commerce app where one co-founder left after three months but walked away with 25% of the company because they hadn't set up vesting. The remaining founders spent years working around that dead equity, and it nearly killed their Series A round.

Things That'll Come Back to Bite You

• Accepting investment without a clear valuation cap on convertible notes—you might end up giving away way more than you planned when it converts
• Not understanding liquidation preferences, which means investors get paid first and you might get nothing even if the company sells
• Giving board seats too early—once someone has a board seat its difficult to remove them, even if the relationship goes south
• Verbal agreements about equity that aren't properly documented; I've seen "handshake deals" lead to proper legal nightmares years later
• Taking money from too many small investors instead of fewer larger ones—more investors means more opinions and slower decisions

The healthcare startup I mentioned earlier learned this the hard way when they had 15 different angel investors, each with their own ideas about product direction. What should've been quick decisions turned into weeks of back-and-forth emails. This is similar to challenges with getting different departments to agree on one app—too many voices can paralyse decision-making. Keep your cap table clean from day one because fixing it later is expensive, time-consuming, and sometimes impossible. And whatever you do, get proper legal advice before signing anything—those documents will follow you for the entire life of your company.

The Relationship Between Valuation and Equity

The maths here is actually pretty straightforward but I've seen so many founders get confused by it. Your company valuation and the equity you give away are directly linked—if an investor puts in £100,000 and you agree on a £500,000 post-money valuation, they're getting 20% of your company. Simple division. But here's where it gets tricky in practice: how do you even arrive at that valuation in the first place?

I built an app for a health tech startup a few years back and watched them negotiate their seed round. They'd spent about £80,000 on development and legal setup, so naturally they thought the company was worth at least that much. Wrong approach. Investors don't care what you've spent—they care about what you could become. This particular startup had early user traction (about 2,000 active users) and a clear path to monetisation, which is why they managed to secure a £1.2 million valuation even though they'd barely spent anything by comparison. Building an email list before launch had helped them demonstrate real market demand to investors.

Pre-money valuation is what investors think you're worth before they put money in; post-money valuation includes their investment and determines their ownership percentage

The mistake I see founders make is anchoring their valuation to the wrong things—development costs, their personal salary sacrifices, or what they reckon a competitor might be worth. Actually, early-stage valuations in the app space typically range from £500,000 to £3 million depending on your traction, team experience, and market size. If you're pre-revenue with just a prototype, you'll be at the lower end; if you've got paying users and month-on-month growth, you can justify asking for more. But be realistic. Asking for a £5 million valuation when you've got 100 users and no revenue isn't confidence, its delusion, and investors will walk away before the meeting even finishes.

Keeping Enough for Future Funding Rounds

Here's something most first-time founders dont realise—that first investment round is just the beginning. I mean, you'll probably need at least two or three more rounds of funding before you're profitable or ready for acquisition. And each time you raise money, you'll give away more equity. It's a bit mad really, but I've watched founders give away 40% in their first round, then struggle desperately to raise a Series A because there simply wasn't enough equity left to make it attractive for new investors whilst still keeping them motivated.

The rule I share with clients is this: aim to give away 15-25% in your seed round, keeping a minimum of 50% for yourself and co-founders after that first raise. This leaves room for at least two more funding rounds where you'll likely give away another 15-20% each time. Sure, your slice gets smaller with each round, but the pie is growing too—10% of a £50 million company beats 60% of a company that ran out of runway because it couldn't raise more money. Modern features like artificial intelligence can significantly increase your app's value proposition to investors.

Planning Your Cap Table Three Rounds Ahead

I always tell founders to map out their cap table through Series B before accepting their first penny. Work backwards from where you want to be. If you want to own at least 20% when you exit, and you know you'll need three funding rounds, you can calculate exactly how much you can afford to give away in round one. Most VCs expect founders to own 15-30% at exit to stay properly motivated... and honestly, they're right. I've watched founding teams with less than 10% basically check out mentally because the financial incentive just wasn't there anymore. You need enough skin in the game to make those late nights and tough decisions worth it.

What Different Types of Investors Expect

I've sat through enough pitch meetings to know that not all investors look at equity the same way, and honestly, understanding their different expectations has saved my clients from some pretty awful deals over the years. Angel investors, VCs, and strategic investors all come to the table with completely different mindsets about what they want from your startup ownership structure.

Angel investors—these are usually individuals putting in their own money—tend to be more flexible with equity expectations. I've seen them accept anywhere from 5% to 25% depending on how early they're coming in and how much they believe in you personally. They often care more about the relationship than squeezing every percentage point out of you. One healthcare app I worked on got £50k from an angel who took just 8% because he'd worked in the industry for decades and wanted to be actively involved; it wasn't just about the return for him.

Venture Capital Firms

VCs operate differently—they've got fund economics to consider and limited partners breathing down their necks. In a seed round, they typically want 15-25% of your company, sometimes more if your valuation is low. Series A investors? They're usually looking at 20-30% because they're writing bigger cheques and taking on more risk at that stage. But here's the thing, VCs also know they need to leave room for future rounds or they'll struggle to bring in follow-on investment.

Strategic Investors and Corporates

Strategic investors from larger companies often want smaller equity stakes (5-15%) but they come with strings attached—access to their customer base, integration requirements, sometimes even board seats that give them more control than their ownership percentage suggests. I worked on a fintech project where a bank took 12% but demanded veto rights on certain technical decisions; it became a proper headache during development. These corporate partnerships can be valuable though, especially for business-focused mobile applications that need enterprise distribution channels.

Create a simple spreadsheet showing your cap table after each potential investment scenario—seeing the numbers laid out helps you understand how much control you're actually giving away and what'll be left for future rounds. Its easier to negotiate when you know your limits.

The biggest mistake I see founders make? Treating all investor types the same during negotiations. A VC firm managing hundreds of millions expects different terms than an angel putting in their retirement savings—they've got different risk tolerances, different time horizons, and different levels of involvement they want in your business. Understanding these differences before you start talking numbers will save you from giving away too much or accepting terms that'll limit your flexibility down the road.

Protecting Your Ownership as a Founder

I've watched too many founders give away control of their companies without realising what they'd done until it was far too late. One client came to us wanting to rebuild their fintech app after their first version failed—turned out they'd diluted themselves down to 23% ownership across three funding rounds and lost their board seat. They couldn't make decisions about their own product anymore, which is mental when you think about it. Protecting your ownership isn't just about keeping a percentage; its about maintaining enough control to actually build the company you set out to create. If things go wrong with your development team, you need enough control to make changes like switching development agencies mid-project when necessary.

The most important protection you can put in place is anti-dilution provisions in your shareholder agreement. These clauses protect you if the company raises money at a lower valuation later (a down round). I always recommend founders negotiate for weighted average anti-dilution rather than full ratchet—it's fairer to everyone and won't scare off future investors. You should also establish vesting schedules for yourself, which sounds backwards but actually protects you. If a co-founder leaves early or an investor tries to push you out, having your shares vest over four years with a one-year cliff proves your commitment and makes it harder to remove you.

Pre-emptive rights are another tool I wish more founders understood. These give you the right to buy shares in future funding rounds to maintain your percentage. Sure, you might not have the cash, but having the option matters. And here's something people often miss—make sure your shareholders agreement includes drag-along and tag-along rights. If someone wants to buy the company, drag-along rights mean minority shareholders can't block a sale that's genuinely good for the business.

Key Ownership Protections to Negotiate

• Board seat or observer rights to stay involved in major decisions
• Protective provisions requiring your approval for significant actions (selling the company, raising debt, changing the business model)
• Information rights so you always know whats happening financially
• Right of first refusal if other shareholders want to sell their shares
• Founder-friendly vesting terms (monthly vesting rather than yearly cliffs where possible)

The reality is that maintaining control becomes harder with each funding round. I worked with an e-commerce client who kept majority ownership through three rounds by being really strategic about who they took money from and negotiating hard on valuation. They gave away 15% in their seed round, 18% in Series A, and 12% in Series B—staying above 50% ownership the whole time. But they also accepted a lower valuation in their Series A to achieve this, which meant leaving money on the table in the short term. That's the kind of trade-off you need to think through carefully... do you want more money now or more control long-term? There's no right answer, it depends entirely on your situation and what matters most to you.

Conclusion

Look, getting your equity distribution right from the start isn't just about maths—it's about building a company that can actually survive multiple funding rounds without leaving you as a minority shareholder in your own business. I've seen founders give away 40% in their first round because they were desperate for validation, and then struggle to raise a Series A because there simply wasn't enough equity left to make it attractive for new investors. Its a mistake that's really hard to recover from.

The truth is, there's no magic number that works for everyone. A pre-revenue startup raising £250k will give away more equity than a company with £500k in annual recurring revenue raising the same amount; thats just how valuations work. But as a general guide? Try to keep your seed round between 10-20% if you can, maybe stretching to 25% if the investor brings something really valuable beyond just money. And always—always—leave yourself room for at least two more funding rounds before you hit 50% dilution.

What matters most is understanding the trade-offs you're making. Every percentage point you give away today affects every future round, every hiring decision where you need to offer equity, and ultimately your own financial outcome if things go well. But being too stingy can kill your company before it gets started. I mean, 100% of nothing is still nothing, right? The key is finding that balance between giving investors enough to make it worth their while whilst keeping enough control and ownership to make the journey worthwhile for you. Get that right, and you're setting yourself up properly for whatever comes next.