Equity Dilution Calculator

How to use the equity dilution calculator

1. Your ownership before the round: your percentage of the company today. Use the fully diluted figure from your cap table, which counts options already set aside as well as issued shares.
2. Pre-money valuation: what you and the investors agree the company is worth before the new money arrives. If you only know the post-money figure, subtract the investment, or use the pre-money and post-money valuation calculator.
3. New investment: the total raised in this round from all investors.
4. New option pool: shares set aside for future hires, written as a percentage of the company after the round. Enter 0 if the round does not create or top up a pool.

The result updates as you type. You see your ownership after the round, the share the new investors hold, the post-money valuation and the paper value of your stake. The bar shows how the whole company is divided once the round closes.

The equity dilution formula

The calculator treats the option pool the way term sheets commonly do: the pool is a percentage of the company after the round, and it is carved out of the existing shareholders before the investors buy in. That means founders carry the cost of the pool and the investors' percentage is not reduced by it. The difference between the two valuation figures is explained in pre-money vs post-money valuation.

A worked example of dilution in one round

Say you and a co-founder each own 50% of a company. You agree a $4,000,000 pre-money valuation with investors who put in $1,000,000, and the term sheet asks for a new option pool equal to 10% of the company after the round.

You give up 15 percentage points of the company, which is a 30% cut in your share. Your co-founder ends on 35% too, the investors hold 20% and the pool holds 10%. Set the pool to 0 and you keep 40% instead, which shows how much of the dilution in this example comes from the pool and not from the investors.

How to read the result and limit dilution

Dilution is not a loss by itself. You own a smaller slice of a company that now has cash to grow. The question is whether the money buys enough progress to make the smaller slice worth more later. These are the levers you control:

• Raise what the next milestone needs. At a fixed valuation, every extra dollar raised sells more of the company. Work out the amount from your costs and your runway, not from a round number.
• Earn a higher valuation before you raise. Paying customers and evidence of demand are what move it. If you have not tested demand yet, start with how to validate a startup idea.
• Size the option pool from a hiring plan. List the roles you expect to hire before the next round and the equity each would get. A pool sized from that list is easier to defend than a default percentage.
• Model the next round as well. Run the calculator again with the ownership you ended on. In the example, a later round that sells another 20% with no new pool takes you from 35% to 28%.
• Compare with not raising. Bootstrapping costs no equity, but it can mean slower growth.

If you are getting ready to raise, the Raise step in Fonda's Scale phase walks you through it with Marty, your AI co-founder, and it is free to start. The guide to creating a pitch deck covers what investors expect to see.

What the calculator leaves out

• SAFEs and convertible notes. These turn into shares at the priced round and dilute you further. Model them first with the SAFE note calculator.
• An existing option pool that is topped up. The calculator treats the pool figure as entirely new shares. If part of the pool already exists and is counted in your current ownership, enter only the increase.
• Several rounds at once. It models one round. Run it again for each later round.
• Share classes and investor rights. Liquidation preferences, anti-dilution clauses and pro rata rights change what your percentage is worth in a sale. They are in the term sheet, not in this maths.
• Tax and legal effects. Rules differ by country. Ask a startup lawyer or accountant before you sign.