Skip to content

Diluted and Confused with Carta + HSF: 7 Key Takeaways

An evening of expert insights distilled into a 2 minute read

We recently came together with Carta and HSF Kramer to host “Diluted and Confused: Fundraising in 2025 And ESOP Insights" at Cremorne Digital Hub.

Carta shared fresh data from thousands of startups globally, and HSF Kramer broke down the legal realities of ESOPs that most founders get wrong. Here are our biggest takeaways (in case you missed it):

 

1. Our Founders Are More Generous With Equity

Screenshot_2025-07-07_at_14.21.17

Screenshot 2025-07-07 at 14.21.08

Aussie (and NZ!) startups allocate 12.6% median ESOP pools compared to just 10.0% in other APAC regions.

Interestingly, ANZ employees actually exercise their options.

Compared to rates across the world, we have 51.8% exercise rates versus 22.8% in East + Southeast Asia and 14.5% in the Middle East + South Asia.

This suggests that if you're competing for top talent in ANZ, generous equity packages are becoming table stakes. If your employees aren't exercising their options, it might be worth taking a look at your communication and education around equity value.

 

2. M&A is becoming popular

Screenshot_2025-07-07_at_14.22.48

Whilst everyone's eyes are on IPOs, M&A has quietly become the trending exit strategy.

Q1 2025 posted 180 startup acquisitions - the most active stretch on record.

Meanwhile, unless you're selling burrito bowls, the Australian IPO market has been pretty cold.

Why the shift?

The takeaway? Start building relationships with potential strategic acquirers sooner rather than later. Those relationships take years to develop, and the best deals can happen when you least expect it.

We’ll be covering this in detail at our next Cremorne Connect - sign up now! https://lu.ma/tf3sb41f

3. Down Rounds are Up

Unfortunately, down rounds have surged from around 11% in 2019 to over 30% in recent quarters.

This appears to be driven by several factors:

  • The 2020-2022 valuations may have been genuinely unsustainable, and we're seeing the inevitable correction
  • Investors have learnt their lesson about paying premium prices without seeing premium unit economics
  • Fundamentals are replacing the "growth at all costs" mentality

Down rounds are never easy, so it's crucial to revisit your ESOP and ensure you're still providing meaningful value to your team - whether through equity adjustments or exploring other types compensation.

Screenshot_2025-07-07_at_14.36.16

4. The Series A/B Gap Is widening

While overall VC funding was up 18.4% in 2024, almost all of that growth went to Series B and later stages. Seed and Series A didn't just see flat funding - they saw declining dollars and fewer deals year-over-year.

This seems to suggest:

  • We're in a lower-risk environment where proven business models are beating potential
  • The companies that are succeeding are attracting disproportionate amounts of follow-on capital

The startup scene is increasingly becoming 'winner takes all' each quarter - and with the rise of AI, this dynamic is only accelerating.

This trend might mean VCs miss the next generation of truly disruptive companies that don't fit neat, proven models. With lean, bootstrapped startups also proving they can scale without traditional VC backing, we might be witnessing shifting tides away from the standard fundraising blueprint.

Screenshot_2025-07-08_at_14.08.35

Screenshot 2025-07-08 at 14.08.43

5. The 50 Shareholder Trap

Many founders have never heard of Australia's 50 shareholder limit - but it's a critical threshold that can catch you off guard.

Once you hit 50+ shareholders, you trigger public company obligations, including continuous disclosure requirements, mandatory financial reporting standards (which become publicly available), and companies must comply with stricter disclosure requirements when fundraising. .

Most founders only discover this when their lawyer delivers the news during Series A prep.

Why this matters:

  • You suddenly need audited financials and formal reporting processes
  • Your compliance costs jump dramatically
  • Decision-making becomes more complex with formal disclosure requirements

The smart play? Structure nominee arrangements early, or consider if overseas incorporation is a fit for you.

4-1

6. You can go it alone

Solo founders are in fashion - Solo-founded startups have surged from 17% in 2015 to 35% in 2024, according to Carta data.

Why the shift? Three hypotheses:

  • AI tools are reducing dependency on diverse technical skill sets within founding teams
  • Remote work and global talent access mean you can hire specific expertise rather than seek a co-founder
  • For every example of successful co-founders, there are just as many stories of co-founder breakups and solo founder successes

But there's a catch: investors still worry about single points of failure and skills gaps. If you're going solo, you need a compelling answer to this objection.

You also can't operate indefinitely without key expertise. If you're building software, you'll eventually need technical depth. If you're a technical founder, you'll need to master product-market fit and go-to-market strategy. The upside? As a solo founder, you have more room to be generous with early-stage employee equity.

6

7. Cap Table Hygiene Isn't Optional

Your cap table might end up under the microscope during due diligence, any red flags can put the brakes on your funding round.

The problem is, you're so busy building your startup (and making inevitable mistakes along the way) that by the time you think seriously about cap table management, it's often already a mess that's expensive and time-consuming to untangle.

Here's what to keep an eye on:

  • The maths doesn't add up - a surprisingly common mistake when you have 20 different people with varying vesting schedules. Throw dilution into the mix, and your cap table managed on Google Sheets becomes a mess.
  • Promised but unissued equity - you've committed equity to employees but haven't formally issued it. Investors can't price your round without knowing the final shareholding structure.
  • Stacked SAFEs - multiple SAFE rounds at different valuations, discounts, and caps create chaos. When Series A time arrives, investors struggle to model final ownership, and the conversion maths becomes a nightmare.

Fixing cap table issues during a fundraise is like renovating your house whilst potential buyers are walking through. Everything takes longer, costs more, and creates unnecessary stress when you should be focused on selling your vision.


The evening's biggest insight?

Cap table management and equity planning aren't "Series A problems" - they're foundational decisions that compound over time. The founders who take it seriously from day one are the ones who don't get caught scrambling when it really matters.


Thanks to the Carta team and Herbert Smith Freehills Kramer for sharing these insights with Melbourne's startup community.

Want the full presentation slides? Check them out here: Canva Link

Don’t miss our next event - CDH Clubhouse Community Day : https://lu.ma/j0gor9fh

Related Articles