Model how a funding round dilutes founder and investor ownership — calculate post-money valuation, new shares issued, and your diluted ownership percentage.
Equity dilution happens every time a company issues new shares. When investors
receive new shares in exchange for their investment, the total share count increases
and every existing shareholder owns a smaller percentage — even though their absolute
share count is unchanged.
If you held 60% pre-round (6M of 10M shares), you now hold:
6M / (10M + 2M new shares) = 50%
Your ownership dropped from 60% to 50% — a 10pp dilution.
Pre-money vs post-money valuation
These terms cause significant confusion in fundraising negotiations:
Pre-money: Company value before the investment.
Post-money: Pre-money + Investment amount.
When an investor says "I'll invest $1M at a $5M valuation," clarify: is that $5M
pre-money or post-money? The difference is significant:
- $5M pre-money: investor gets 1M / 6M = 16.7%
- $5M post-money: investor gets 1M / 5M = 20%
Always specify pre-money in term sheets.
Cumulative dilution across rounds
Dilution compounds. Typical dilution by stage:
Round
Dilution
Cumulative founder ownership
Pre-seed ($500k)
10–15%
85–90%
Seed ($1–2M)
15–25%
65–75%
Series A ($5–10M)
20–30%
45–55%
Series B ($20–40M)
15–25%
35–45%
Dilution at each round is on the post-round cap table, not the original. A founder
at 85% post-seed who raises a 20% Series A retains 85% × 80% = 68%.
Option pool shuffle
Investors often require creating or expanding an option pool before the funding
round closes — increasing dilution on founders. A "20% post-money option pool"
on a $6M round means creating shares equal to 20% of the post-round cap table.
This dilutes founders before investors, increasing effective pre-money dilution.
Model this by adding option pool shares to "current shares outstanding" before
running the calculator.
Frequently asked questions
What does this calculator do?
Model founder and investor dilution from a funding round: post-money valuation,
new shares issued, and your ownership percentage after the round.
Pre-Money vs Post-Money Valuation: The Difference and Why It Matters
Pre-money and post-money valuation determine how much of your company investors get. A $5M pre-money deal and a $5M post-money deal result in very different ownership splits.
The distinction between pre-money and post-money valuation is one of the most
frequently confused concepts in startup fundraising — and getting it wrong can
cost founders significant equity.
The definitions
Pre-money valuation: The company's agreed value before the investment.
The price is set by negotiation — investors and founders agree on what the
company is worth at this moment, before any new capital.
Post-money valuation: Pre-money + Investment. This is the company's value
after the round closes and the new capital is on the balance sheet.
Imagine an investor says: "I'll invest $1M at a $5M valuation."
If $5M is pre-money:
Post-money = $5M + $1M = $6M
Investor ownership = $1M / $6M = 16.7%
If $5M is post-money:
Pre-money = $5M − $1M = $4M
Investor ownership = $1M / $5M = 20%
Same sentence, same numbers — but a 3.3 percentage point difference in
investor ownership. At a later exit, this gap compounds significantly.
What term sheets say
Professional term sheets always specify whether a valuation is pre-money or
post-money. The standard format: "The Company will issue and sell shares at a
price per share equal to $X, representing a pre-money valuation of $Y."
Red flags:
- Valuation stated without pre/post specification
- "Valuation of $5M" without context
- Verbal agreements that differ from written term sheet language
If in doubt: ask explicitly. "Is that $5M pre-money or post-money?" No
serious investor will be offended by the question.
The option pool complication
Many term sheets require creating an option pool before closing, which adds
shares to the cap table pre-investment and further dilutes founders.
Example: $5M pre-money with a 15% option pool expansion.
If you have 10M shares and investors require a 15% post-round option pool:
New options = (10M + new options + investor shares) × 15%
This is solved iteratively. The key point: option pool expansion always
comes from the pre-money side — it dilutes existing shareholders, not investors.
Benchmarks for founder dilution at pre-seed, seed, Series A, and Series B rounds — plus how to negotiate valuation to minimize ownership loss without breaking the deal.
There's no universal answer for how much equity to give investors, but there are
strong market norms. Understanding them helps you negotiate from a position of
knowledge rather than guessing.
Series A ($3M–$15M)
Typical dilution: 20–30%
Valuation range: $10M–$30M pre-money
Investors: institutional VCs (e.g., Sequoia, Andreessen Horowitz, Benchmark)
Series B ($10M–$40M)
Typical dilution: 15–25%
Valuation range: $30M–$100M pre-money
Investors: growth equity, institutional VCs
What investors actually need
Investors typically seek 15–25% ownership in each round. The reason is portfolio
construction: if a VC fund invests in 30 companies hoping 3 return 10×, each
investment needs to have meaningful ownership to generate fund returns.
A $100M fund making $5M investments at 20% ownership owns $20M of a company
at exit if it's worth $100M — a 4× return on that investment. If ownership is
only 10%, same company returns $10M (2×). Fund math matters.
How to negotiate higher valuation
Traction: The strongest negotiating position is growth. MoM growth of 15–20%,
strong NPS, and paying customers give you leverage.
Competing term sheets: Multiple investors bidding creates price competition.
Even a soft indication of interest from a second investor improves your position.
Strategic value: Investors with specific expertise (your industry, your GTM)
often accept lower ownership for the privilege of getting in.
Staged milestones: SAFEs and convertible notes defer valuation to the next
priced round. If you're pre-revenue, a SAFE with a reasonable valuation cap
avoids negotiating a definitive valuation before you have traction data.
Cumulative dilution model
Founders who raise $500k at 10%, then $2M at 20%, then $10M at 25%:
After pre-seed: 90% × 100% = 90%
After seed: 90% × 80% = 72%
After Series A: 72% × 75% = 54%
With a 10% employee option pool created at each round, founders typically
retain 35–45% at Series A. This is normal and healthy.
Cap Table Basics for Founders: Structure, Dilution, and Common Mistakes
Your cap table tracks who owns what in your company. Learn the structure, how dilution works across rounds, the option pool, and the mistakes that cause problems at exit.
The cap table (capitalization table) is the authoritative record of who owns
equity in your company and in what form. Getting it right from day one prevents
expensive problems at fundraising, acquisition, or IPO.
What's on a cap table
A basic cap table has three sections:
Common Stock: Founder shares and employee shares (typically vesting over 4
years with a 1-year cliff). Founders usually start with common stock with no
vesting — though adding founder vesting early is increasingly common and viewed
favorably by investors.
Preferred Stock: Investor shares from priced rounds (Series Seed, Series A,
Series B...). Preferred stock has liquidation preferences and other rights not
available to common stockholders.
Options / Warrants: Employee Stock Options (from the ESOP), advisor warrants,
and any other derivative securities. Options typically vest over 4 years with a
1-year cliff and have a strike price equal to the 409A fair market value at grant.
Fully diluted vs issued shares
Issued shares: Shares actually held by someone today.
Fully diluted shares: Issued shares + all options/warrants, whether vested
or not, whether exercised or not.
Investors almost always quote ownership on a fully diluted basis — "I own 20%
fully diluted" means 20% of the total if all options were exercised. This is
the correct way to calculate dilution.
The option pool (ESOP)
The employee stock option pool (ESOP) reserves shares for future employee grants.
Typical sizes: 10–20% of fully diluted shares.
Investors usually require you to increase the option pool before their investment
closes — which dilutes founders, not investors. This is the "option pool shuffle."
To minimize it: negotiate the option pool size carefully. Only reserve what you
actually plan to grant in the next 18–24 months. An investor asking for a 20%
pool for a 5-person company is excessive — push back with a hiring plan.
Common mistakes
No vesting on founder shares: If a co-founder leaves year 1, they shouldn't
keep all their equity. Implement 4-year vesting with 1-year cliff from day one.
No 83(b) election: Founders with unvested shares must file an 83(b) election
within 30 days of grant to lock in their tax basis. Missing this window can result
in massive phantom income tax as shares vest.
Messy cap table history: SAFEs and notes that aren't converted before a priced
round create complexity. Clean up your cap table before Series A.
Oral agreements: Verbal equity promises without a signed agreement are
unenforceable and create disputes. Document everything in writing.