Equity Dilution Calculator
Founder ownership through several rounds, with the option pool modelled where it actually comes from: the pre-money, which means the founders pay for it.
Founders at the start 2, holding 100% between them
Rounds 3
Round 1
raise $500,000.00 on $2,000,000.00 pre-money
post-money $2,500,000.00
investor takes 20%
option pool created 10%, out of the pre-money
which costs the founders 2% of the company
founders after 70%
pool after 10%
investors after 20%
Round 2
raise $2,500,000.00 on $10,000,000.00 pre-money
post-money $12,500,000.00
investor takes 20%
option pool created 5%, out of the pre-money
which costs the founders 0.7% of the company
founders after 52.5%
pool after 12.5%
investors after 35%
Round 3
raise $8,000,000.00 on $32,000,000.00 pre-money
post-money $40,000,000.00
investor takes 20%
founders after 42%
pool after 10%
investors after 48%
At the end
founders together 42%
each founder, if equal 21%
option pool 10%
investors 48%
total raised $11,000,000.00
Why it is not just subtraction
adding the rounds up gives 25%
compounding gives 42%
the difference 17%, because each round dilutes what is left
What the pool shuffle cost
total, across the rounds 2.7%
founders without it 44.7%
at the exit value $2,160,000.00
At an exit of $80,000,000.00
founders together $33,600,000.00
each founder, if equal $16,800,000.00
option holders $8,000,000.00
investors $38,400,000.00
investors put in $11,000,000.00
their multiple 3.49×
assuming ordinary shares throughout, which a real term sheet will not be
Dilution compounds. Adding up what each round took would leave the
founders with 25%; the real figure is 42%, because every round dilutes
what is left rather than the original hundred percent.
The option pool is created out of the pre-money valuation, so it dilutes
the existing shareholders and not the incoming investor: their
percentage is protected. Across these rounds that costs the founders
2.7% of the company, which is invisible in the headline "we sold 20%"
figure.
The pool size is negotiable and it is negotiated badly. An investor asks
for a pool large enough to cover two years of hiring; founders should
cost that hiring plan out, because every unnecessary point in the pool
is a point taken from them at the pre-money price.
Ownership percentage is not the same as money. Twenty percent of a
company worth ten times more is the better outcome, and founders who
optimise for the percentage rather than the valuation often end up with
less. The arithmetic above says nothing about which round was a good
deal.
This assumes ordinary shares. Real term sheets have liquidation
preferences, participation and sometimes anti-dilution ratchets, and a
1x participating preference can take a large share of a modest exit
before the ordinary shares see anything. The exit figures above are the
optimistic version.
A SAFE or convertible note is not in this model. It converts at the next
priced round, usually at a discount or a cap, and it dilutes the
founders at that point rather than when it is signed: a pre-money SAFE
dilutes more than a post-money one, and stacking several is how founders
find themselves with far less than they expected.
Employee options are shares once exercised. A pool that is granted and
vested is real dilution even before anybody exercises, which is why the
fully diluted number is the one to use for any calculation about
ownership.
Output is valid and updates as you type.
Fix the highlighted fields to update the output.
Founders sell 20 percent three times and keep 42 percent, not 40. Dilution compounds, because each round dilutes what is left rather than the original hundred percent.
The part that is usually missing from a dilution calculator is the option pool. A new pool, or a top-up of an existing one, is almost always created out of the pre-money valuation. That means the existing shareholders pay for it and the incoming investor does not: their percentage is protected. It is called the option pool shuffle, and across the three rounds below it costs the founders 2.7 points of the company, worth $2.16 million at the exit.
None of that is visible in the headline “we sold 20 percent at a $10 million pre-money” figure.
How to use
- Write each round as
raise : pre-money valuation : option pool percent, one a line. - Leave the pool off a round that does not create one.
- Add an exit value to see the split, remembering it assumes ordinary shares.
Example
Round 1
raise $500,000.00 on $2,000,000.00 pre-money
investor takes 20%
option pool created 10%, out of the pre-money
which costs the founders 2% of the company
founders after 70%
Round 3
raise $8,000,000.00 on $32,000,000.00 pre-money
investor takes 20%
founders after 42%
At the end
founders together 42%
each founder, if equal 21%
option pool 10%
investors 48%
total raised $11,000,000.00
What the pool shuffle cost
total, across the rounds 2.7%
founders without it 44.7%
at the exit value $2,160,000.00
At an exit of $80,000,000.00
founders together $33,600,000.00
their multiple 3.49×Pitfalls
The pool comes out of the pre-money. This is the single most valuable thing to understand before a term sheet conversation. A 10 percent pool in a round where the investor takes 20 percent costs the existing holders 2 points more than it would if the pool were carved out afterwards.
The pool size is negotiable and usually negotiated badly. An investor asks for enough to cover two years of hiring. Cost that hiring plan out: every unnecessary point is a point taken from the founders at the pre-money price, and “standard” is not an argument.
Percentage is not money. Twenty percent of a company worth ten times more is the better outcome. Founders who optimise the percentage rather than the valuation frequently end up with less, and this calculator deliberately says nothing about whether a round was a good deal.
This assumes ordinary shares. Real term sheets carry liquidation preferences, participation rights and occasionally anti-dilution ratchets. A 1× participating preference takes a large slice of a modest exit before ordinary shares see anything, so the exit figures here are the optimistic version.
A SAFE or convertible note is not modelled. It converts at the next priced round, at a cap or a discount, and dilutes the founders then rather than when it was signed. A pre-money SAFE dilutes more than a post-money one, and stacking several is how founders discover they own far less than they thought.
Granted options are real dilution. A pool that is granted and vesting dilutes before anybody exercises. The fully diluted number is the one to use for any ownership calculation.
Pro-rata rights change later rounds. An existing investor exercising pro-rata takes part of the new round, which changes who is diluted and by how much. That is a negotiation rather than arithmetic, and it is not in this model.
Compatibility
Arithmetic in the browser: nothing is uploaded and nothing is stored, which matters for cap-table figures.
Each round multiplies every existing holder’s stake by 1 − investor share − pool share, which is what
a pre-money pool means. The shuffle cost is the difference against (1 − investor)(1 − pool), the
post-money alternative, and it works out as exactly the product of the two shares. The test suite
asserts that founders, pool and investors always sum to the whole company after every round.
The investor’s share is the raise divided by the post-money valuation, which is the definition. A round whose investment plus pool takes the whole company is refused rather than producing a negative holding.
What this does not model: preferences, ratchets, converting notes, secondary sales, pro-rata, and different share classes. Every one of those can matter more than the dilution arithmetic, and none of them is arithmetic.