Equity Dilution Calculator

Equity dilution happens when a company issues new shares, reducing the percentage ownership of existing shareholders. The most common trigger is a funding round where new shares are sold to investors. Dilution also occurs when employees exercise stock options, when convertible notes convert, or when the company grants additional equity. Your share count stays the same, but the total share count grows, so your percentage of the company shrinks.

Dilution percentage equals new shares issued divided by total shares after the round. If a company has 10 million shares and issues 2 million new shares, the dilution to existing shareholders is 2 / 12 = 16.7 percent. Your specific dilution depends on whether you participate in the new round. If you do not participate, you bear the full dilution percentage.

The option pool shuffle is a clause in most venture term sheets where the option pool is created or topped up before the new investor's money comes in. This is structured so the dilution from the option pool falls entirely on existing shareholders, not the new investor. If the pool is created post-money instead, the new investor shares the dilution. Most term sheets default to pre-money option pool, which is more favorable to investors.

Pre-money valuation is what the company is worth before new investment. Post-money equals pre-money plus the investment amount. If a company has a pre-money of 10 million dollars and raises 2 million dollars, the post-money is 12 million dollars. The new investor owns 2 divided by 12 = 16.7 percent of the company after the round.

Convertible notes and SAFEs convert into equity at a future priced round, usually at a discount or with a valuation cap. They look non-dilutive at issuance but produce real dilution when they convert. Always model the converted impact when planning future rounds, especially if you have multiple SAFEs stacking up. A 1.5 million dollar SAFE at a 10 million dollar cap converts into a meaningful chunk of the cap table at a Series A.

Anti-dilution provisions protect early investors from dilution if the company raises a future round at a lower valuation, called a down round. The two main forms are full ratchet (investor gets fully repriced as if they invested at the lower price) and weighted average (a softer adjustment based on round size). Most modern venture deals use broad-based weighted average, which is more founder friendly than full ratchet.

When a company expands its employee stock option plan before a round, the new shares dilute everyone except the incoming investor (if structured as pre-money option pool). Founders and existing employees bear the full hit. ESOP refreshes of 10 to 15 percent at each major round are common, which is why founders often end up at single-digit ownership after several rounds.

This version models a single round. To estimate dilution across multiple rounds, run the calculator once per round, using the post-round cap table from each iteration as the starting point for the next. A multi-round cap table modeler is planned as a future enhancement.