Equity Dilution

Understanding Ownership Dilution After a Funding Round

When a company raises a new funding round, existing shareholders keep the same fraction of a now-larger pie — their ownership percentage shrinks, but the dollar value of their stake stays the same. Enter your current ownership percentage, the round’s pre-money valuation, and how much is being raised, and this calculator returns your new ownership percentage and the dollar value of your stake before and after.

Key Factors to Consider

This calculator models one straightforward round in isolation — a few real mechanics change how dilution actually plays out in practice:

• Dilution across multiple rounds compounds, it doesn’t simply add up. Going through three rounds that each dilute a stake by 20% doesn’t leave 40% ownership from a 100% start — each round applies to whatever percentage remains after the previous one, so cumulative dilution is smaller than a simple sum would suggest.
• An expanded employee option pool is a common, separate source of dilution. When a new option pool is created or expanded as part of a round, it’s frequently added to the pre-money valuation rather than the post-money one — a structuring choice (sometimes called the “option pool shuffle”) that shifts that dilution onto existing shareholders rather than the new investors. This calculator’s simple formula doesn’t model that adjustment.
• Pro-rata rights let some investors avoid dilution in future rounds. An investor with pro-rata rights can invest additional money in a later round specifically to maintain their existing ownership percentage — a right not every shareholder has, and one this calculator doesn’t factor in.
• A “down round” (a lower valuation than the previous round) is the case where value, not just percentage, is actually lost — see the FAQ below for why ordinary dilution at a rising or flat valuation doesn’t cost existing shareholders real value on its own.

The Formula

$$\vE{\text{Post-Money Valuation}} = \vB{\text{Pre-Money Valuation}} + \vC{\text{Round Amount}}$$ $$\vD{\text{New Ownership \%}} = \vA{\text{Current Ownership \%}} \times \frac{\vB{\text{Pre-Money Valuation}}}{\vE{\text{Post-Money Valuation}}}$$

Worked Example

10% ownership, an $8,000,000 pre-money valuation, raising $2,000,000:

1. Post-Money Valuation: $\vB{8{,}000{,}000} + \vC{2{,}000{,}000} = \vE{10{,}000{,}000}$.
2. New Ownership: $\vA{10} \times \frac{8{,}000{,}000}{10{,}000{,}000} = \vD{8\%}$.
3. Stake value before: $10\% \times 8{,}000{,}000 = 800{,}000$. Stake value after: $8\% \times 10{,}000{,}000 = 800{,}000$ — unchanged, even though the percentage dropped.

Common Mistakes

• Assuming a smaller ownership percentage always means lost value. As covered above, ordinary dilution at a flat or rising valuation leaves the dollar value of a stake unchanged — only a down round, where the new valuation is genuinely lower, actually destroys value.
• Adding up dilution percentages across rounds instead of compounding them. As noted above, each round dilutes whatever percentage remains after the previous one — three 20% dilution events don’t leave 40% ownership from a 100% start, they compound to a smaller cumulative effect.
• Ignoring the option pool shuffle when comparing term sheets. As mentioned above, whether a new or expanded option pool is added to the pre-money or post-money valuation changes who actually absorbs that dilution — two term sheets with the same headline valuation and raise amount can dilute existing shareholders very differently.
• Forgetting that not every shareholder dilutes the same way. An investor with pro-rata rights can invest further in a later round specifically to hold their percentage steady — a right this calculator’s simple math doesn’t model, since it isn’t available to every shareholder.

Useful to Know

• A “down round” is the specific case where real value is lost — not just percentage. See the FAQ below for exactly how that differs from ordinary dilution.
• Term sheets sometimes quote a fully-diluted post-money cap table, which already bakes in the full future option pool — it’s worth confirming which convention a specific term sheet uses before comparing dilution numbers across different offers.
• Dilution from a funding round is a normal, expected part of a startup’s growth — it isn’t inherently bad for existing shareholders as long as the company’s valuation keeps rising faster than new shares are issued. Pairing this calculator with the Startup Runway Calculator calculator gives a fuller picture of whether a specific round’s terms make sense for the company’s actual cash needs.