What is equity dilution?
The equity dilution calculator above shows how much of your company you still own after raising a funding round. Dilution is the reduction in your percentage ownership that happens when a company issues new shares to investors. You keep the same number of shares you held before — but those shares now represent a smaller slice of a bigger company, because new shares were created and handed to the people who put in capital.
This is one of the most misunderstood concepts in early-stage fundraising. Founders often think of a raise purely in terms of the dollars coming in, and forget that the price of those dollars is a permanent reduction in their ownership percentage. Understanding dilution before you sign a term sheet is the difference between a founder who controls their cap table and one who is surprised to discover, three rounds later, that they own less of their own company than their investors do.
Dilution is not inherently bad. A smaller slice of a much larger pie is usually worth far more than a large slice of a small one. The goal is not to avoid dilution — it is to make sure each round of dilution buys enough growth to more than offset the ownership you gave up.
The formula
Post-money valuation = Pre-money valuation + Investment
New investor stake = Investment / Post-money valuation
Your ownership after = Your ownership before × (Pre-money / Post-money)- Pre-money valuation — what the company is agreed to be worth before the new money arrives. This is the number founders and investors negotiate over.
- Investment — the amount of new capital being raised in this round.
- Post-money valuation — pre-money plus the investment. The new investor’s percentage is always measured against this larger, post-money number.
The key insight buried in the formula is that the new investor’s stake is their money divided by the post-money valuation, not the pre-money valuation. This trips up many first-time founders.
Worked example
Suppose you own 100% of your company, you agree to a $4,000,000 pre-money valuation, and you raise $1,000,000:
Post-money = $4,000,000 + $1,000,000 = $5,000,000
New investor stake = $1,000,000 / $5,000,000 = 20%
Your ownership after = 100% × ($4,000,000 / $5,000,000) = 80%You gave up 20% of the company to bring in $1M, and you now own 80%. The investor owns 20%. The arithmetic always works out this way: the investor’s stake equals their contribution as a fraction of the post-money valuation.
What if you negotiated a higher pre-money valuation of $9,000,000 for the same $1M raise?
Post-money = $9,000,000 + $1,000,000 = $10,000,000
New investor stake = $1,000,000 / $10,000,000 = 10%
Your ownership after = 100% × ($9,000,000 / $10,000,000) = 90%Doubling-plus the pre-money valuation cut your dilution in half — from 20% to 10% — for the same amount of cash raised. This is precisely why pre-money valuation is the single most negotiated number in any term sheet.
Benchmarks
Typical dilution per priced round runs 15–25% for a healthy raise. A few rough benchmarks from typical venture financing:
- Seed round: 10–25% dilution is common, depending on how much is raised relative to valuation.
- Series A: 15–25% is the standard range.
- Each subsequent round: often another 10–20%, though this shrinks as the company’s valuation grows faster than the dollar amounts raised.
If a single round dilutes you more than ~30%, that is a signal worth scrutinizing: either the valuation is low relative to the raise, or you are raising more than you need. Founders who routinely give up 30%+ per round can find themselves below 20% ownership before the company reaches a meaningful exit.
This calculator models a single round and does not include the effect of an option pool expansion, which is frequently carved out of the pre-money valuation (the “option pool shuffle”) and adds to founder dilution. For multi-stakeholder ownership tracking, use a cap table.
How to interpret and reduce it
The most powerful lever against dilution is valuation: a higher pre-money valuation for the same raise directly reduces how much you give up. The example above shows that going from a $4M to a $9M pre-money halves the dilution. Building enough traction to justify a higher valuation before raising is almost always more valuable than negotiating hard on secondary terms.
The second lever is raising only what you need. Every extra dollar raised at a given valuation is extra dilution. The discipline of raising 18–24 months of runway — rather than “as much as we can get” — keeps your cap table healthy across the full arc of a company’s life.
Finally, remember that dilution compounds across rounds. Owning 80% after your seed, then 80% of that after your Series A (64%), then 80% again at Series B (51%), shows how quickly founder ownership erodes. Modeling the full sequence — not just the next round — is the mark of a founder who understands their cap table.
Frequently asked questions
What is equity dilution? Dilution is the reduction in your percentage ownership that happens when a company issues new shares to investors in a funding round. You own the same number of shares, but they represent a smaller slice of a larger pie.
How is dilution calculated here? New investor stake equals the investment divided by the post-money valuation (pre-money plus investment). Your ownership after the round equals your prior ownership multiplied by the ratio of pre-money to post-money valuation.