How to use the equity dilution calculator
- List the current shareholders and their share counts. Include founders, early employees with exercised shares and any earlier investors.
- Enter any unissued option pool you have today, then the pre-money valuation and the new investment.
- If the investor wants a bigger pool after the round, enter the option pool wanted as a percent of the company. Leave it blank to keep the pool as it is.
- Read the price per share, the investor's ownership and the before and after table for each holder.
Formula
Post-money valuation = pre-money valuation + investment
Investor share i = investment / post-money valuation
Total shares after = (holder shares + existing pool) / (1 - i), with no pool target
Total shares after = holder shares / (1 - i - p), when the pool target is p of the post-round company
Price per share = investment / (i x total shares after)
With a pool target the new pool shares are created before the investment, which is how most term sheets work. That makes the price per share lower and spreads the cost of the pool across the current holders instead of the new investor.
Worked example
Two founders hold 6,000,000 and 4,000,000 shares. An investor puts $2,000,000 into a company worth $8,000,000 before the money. Post-money is $10,000,000, so the investor owns 2 / 10 = 20%.
Total shares become 10,000,000 / 0.8 = 12,500,000, the investor receives 2,500,000 shares and the price is $2,000,000 / 2,500,000 = $0.80. The founders fall from 60% to 48% and from 40% to 32%.
If the investor also asks for a 10% unissued pool after the round, total shares are 10,000,000 / 0.7 = 14,285,714. The pool adds 1,428,571 shares, the price falls to $0.70 and the first founder drops to 42%.
What dilution really means
Dilution does not remove value from your shares. The shares you hold stay the same in number, but they are a smaller share of a bigger company. If the new money lets the company grow in value, a smaller slice of a larger pie can be worth more than a bigger slice of a small one.
Founders often watch two numbers: the percentage they keep and the price per share. Both change when the pool top-up is added before the investment, which is why the pool target matters so much in negotiation.
Pre-money, post-money and the option pool
These three terms decide the result, and mixing them up is the most common mistake.
- Pre-money is the value agreed before the new money arrives. Post-money is that value plus the new cash.
- The investor's percent is the investment divided by the post-money value, which is why a $2M investment at $8M pre-money buys 20%.
- An option pool is a block of shares reserved for future hires. Counting it in the pre-money lowers the effective valuation for current holders.
- Convertible notes, SAFEs and preferred terms can change the result and are not modeled here.
Assumptions and limits
- The calculator models one priced equity round with a single new investor and fully diluted share counts.
- SAFEs, convertible notes, warrants, liquidation preferences, anti-dilution rights and later rounds are not modeled.
- Share counts in the display are rounded to whole shares, so percentages may differ from exact values by a tiny amount.
- This is an educational estimate and not legal, tax or investment advice. Check any term sheet with a lawyer.
Frequently asked questions
How do I calculate dilution from a funding round?
Divide the investment by the post-money valuation to get the new investor's share, then each existing holder keeps their shares but owns a smaller percentage of the larger total. This calculator does the arithmetic and shows before and after for every holder.
What is the difference between pre-money and post-money?
Pre-money is the company's agreed value before the new investment. Post-money adds the new cash. The investor's ownership is the investment divided by the post-money value, so the same check buys a larger share at a lower pre-money valuation.
Why does the option pool top-up hurt founders more than the investor?
When the pool is created before the investment, its shares are counted in the pre-money share count. The investor still gets the same percentage, so the cost of the new pool falls entirely on existing holders.
Is the percentage I lose the same as the percentage the investor buys?
Each holder keeps a portion equal to one minus the investor's percentage, with a further reduction if a pool is added. With a 20% investor and no pool, everyone keeps 80% of their old percentage, so a 60% holder drops to 48%.