Having less equity than an investor

Suppose a company (C-Corp, Delaware) with 5 co-founders, each having 20% of the shares.

Then an investor wants 30% of the company, which will leave each co-founder diluted to 14%.

• Besides control (does this apply?), what could be the risks and the issues of having the investor holding more equity than any co-founder?
• Is it common (at least for companies with lots of co-founders) to have someone outside the company holding more equity than any co-founder?

Note: I'm not downplaying the control issue. I just believe that this can be addressed. If you disagree, please feel free to consider control issues in your answer.

In a company with multiple founders, it's definitely common for an investor to have more equity than a single founder. If it weren't, then you'd be limiting your investors to about 15% of the company.

The main thing you want to worry about is giving control to your investor. If he gets 30%, then he still hasn't hit 51% and can't control the company by him/herself. But, it does mean that the investor could pair up with 2 of the founders to control the company, since they'd add up to 58%. So, how tight are the five of you?

Recall, though, that the company is managed by the board of directors. So, the control isn't direct -- the investor and the two founders would elect the board, and then control the company through that elected board. So, the goal should be to keep that scenario from happening.

So, what can you do? With any investor, you should have a discussion and agreement about board composition. For example, the investor might get to name one board member, and the founders get to name the other two. And then you'd write up things that have to be unanimous -- going into a completely different line of business, for example. That keeps control with the founders, but gives the investor the ability to be part of the conversation and to veto major changes.

If its your initial investor starting just starting the company. I would say 10% of the company is good for each 20k they put in. I might be low balling or high balling it. But that sort of math is what I used as well as what YCombinator (Total Theory, don't know actuals) uses.. They tend to put in 15k for the summer events they hold, and they tend to expect back between 7-12% of the company. Again, I have never gone through YC, nor do I know actual numbers, its more or less what I come up with after seeing over and over again what they put into a company.