Equity Dilution Calculator

Understanding Startup Equity Dilution

Why Dilution Is Not Always Bad

New founders often panic when they see their ownership percentage drop after a funding round. But dilution is not inherently bad — it is the trade-off you make for growth capital. The key question is whether each round increases the value of your remaining stake. If you own 100% of a company worth $1 million, your stake is worth $1 million. If you own 50% of a company worth $20 million after raising capital, your stake is now worth $10 million. That is a ten-times increase despite "losing" half your ownership. This is the classic "smaller slice of a bigger pie" argument, and it is the fundamental reason venture-backed founders accept dilution.

The Option Pool Shuffle

One of the most misunderstood mechanics in venture financing is the option pool shuffle. When investors require you to create or expand an employee stock option pool before the round closes, those new option shares dilute only the existing shareholders (the founders), not the incoming investors. This means the option pool effectively comes out of the founders' slice. A 10% option pool created pre-round on a $10M pre-money valuation means the founders are really getting a $9M effective pre-money valuation. Always negotiate whether the option pool is created pre-money or post-money — it makes a significant difference to your final ownership percentage.

Anti-Dilution Provisions Explained Simply

Anti-dilution clauses protect investors if a future round happens at a lower valuation (a "down round"). The two most common types are full ratchet and weighted average. Full ratchet reprices all of an investor's previous shares to the new, lower price — this is extremely founder-unfriendly and rare today. Weighted average anti-dilution adjusts the conversion price based on how much money was raised at the lower price relative to the total shares outstanding, which is more balanced. Most modern term sheets use broad-based weighted average anti-dilution, which is the least dilutive to founders among the standard protection mechanisms.

Typical Dilution by Round

While every company is different, there are general benchmarks for how much equity founders typically give up per round:

• Pre-Seed: 10–20% dilution. Often from angels or pre-seed funds investing $250K–$1M.
• Seed: 15–25% dilution. Typical raises of $1M–$4M at $4M–$15M pre-money valuations.
• Series A: 20–30% dilution. Institutional VCs investing $5M–$15M, expecting significant traction.
• Series B: 15–25% dilution. Growth-stage capital, typically $15M–$50M+ raises.

By the time a startup reaches Series B, founders who started with 100% equity often hold 25–40% combined. Solo founders tend to retain more, while multi-founder teams split the dilution among themselves.

Why Founder Vesting Matters — Even for Your Own Shares

It may seem counterintuitive to vest your own shares in the company you started, but founder vesting protects all co-founders from each other. A standard 4-year vesting schedule with a 1-year cliff ensures that if a co-founder leaves after six months, they do not walk away with a full share of the equity. Investors almost always require founder vesting, and it is actually healthy for the company. Without it, a departing co-founder could hold a large equity position while contributing nothing, which creates "dead equity" that makes future fundraising much harder.

The 20% Rule

Most venture capitalists target roughly 15–25% ownership per round. This "20% rule" exists because VCs need meaningful ownership to generate returns for their funds. If a VC invests at 5% ownership, even a 100x exit only returns 5x the fund — not enough to move the needle for a large fund. At 20% ownership, a 10x exit returns 2x the fund, which is meaningful. Understanding this dynamic helps founders negotiate: if a VC demands 30%+, you know they are above market. If they accept 15%, the deal is founder-friendly. Use this calculator to model different scenarios and find the balance between the capital you need and the ownership you want to retain.