Right now, VCs often knowingly invest too much money at the series A
stage. They do it because they feel they need to get a big chunk of
each series A company to compensate for the opportunity cost of the
board seat it consumes. Which means when there is a lot of competition
for a deal, the number that moves is the valuation (and thus amount
invested) rather than the percentage of the company being sold. Which
means, especially in the case of more promising startups, that series
A investors often make companies take more money than they want.
Which means the first VC to break ranks and start to do series A
rounds for as much equity as founders want to sell (and with no
"option pool" that comes only from the founders' shares) stands to
reap huge benefits.
As I always thought the big, required option pool that so heavily diluted founders/early employees was a bit out there. Seems much more sane to practice JIT dilution.
The bigger issue is not that the dilution from the option pool creation happens at that early stage (rather than JIT), it's that VC's require the creation, and therefore dilution, to happen pre-money. Because of this, the founders carry the burden and the new investors don't -- despite the fact that the investors will reap some of the benefit (equity being available to grow the business they now own).
Also, I rather enjoyed reading:
As I always thought the big, required option pool that so heavily diluted founders/early employees was a bit out there. Seems much more sane to practice JIT dilution.