Understanding startup dilution
Equity dilution is inevitable when you raise venture capital. Understanding how it works helps you negotiate better terms and plan your fundraising strategy. This calculator models the most common dilution scenarios founders face.
The dilution formula
New ownership % = Old ownership % × (Pre-money ÷ Post-money)
When you raise money, new shares are created for investors. Your ownership percentage decreases proportionally to how much of the company the new shares represent.
Example: Seed round dilution
- You own 100% of your company pre-funding
- You raise €500k at a €2M pre-money valuation (€2.5M post-money)
- Investors get 20% (500k/2.5M), you now own 80%
Tips for managing dilution
- Focus on value creation, not just minimizing dilution. 10% of a €100M company beats 50% of a €1M company.
- Negotiate option pool size carefully. Larger pools mean more founder dilution before the round.
- Raise what you need, not what you can get. Unnecessary capital means unnecessary dilution.
- Consider pro-rata rights. They let investors maintain their percentage in future rounds.