Hong Life CalculatorsUnderstanding the funding round dilution calculator — concept and principle
When a startup raises money by issuing new shares, existing shareholders own a smaller percentage of a company that is now worth more. This calculator shows how much of the company you own after a priced round, what the investor gets, and what your stake is worth at the post-money valuation. Founders and early holders use it before negotiating a term sheet. It works with any currency; the example uses US dollars.
How it is calculated
- Post-money valuation = pre-money valuation + investment
- Investor ownership = investment ÷ post-money valuation
- Your ownership after = your ownership before × (1 − investor ownership − new option pool %)
- Value of your stake = your ownership after × post-money valuation
The option pool input is the share of the post-money company set aside for future employee options. The calculator treats it as created before the investment, so existing holders absorb it and the investor's percentage stays at investment ÷ post-money.
The principle
New shares are added to the cap table; existing shares are not taken away. Everyone who held shares before keeps the same number, but the total grows, so each holder's percentage shrinks by the same factor. The investor buys a percentage equal to their cash divided by the post-money value, because that is the price they agreed per share. Dilution is not a loss of value by itself: if the new money is priced fairly, a smaller slice of a larger company can be worth more than the old larger slice.
Worked example
- Inputs: pre-money $8,000,000, investment $2,000,000, you own 60%, no new option pool.
- Post-money: 8,000,000 + 2,000,000 = $10,000,000.00.
- Investor ownership: 2,000,000 ÷ 10,000,000 = 20%.
- Your ownership after: 60% × (1 − 0.20 − 0) = 48%.
- Value of your stake: 0.48 × 10,000,000 = $4,800,000.00.
Before the round your 60% was worth 0.60 × 8,000,000 = $4,800,000 on paper, so your value is unchanged while your percentage fell.
How to read the result
Dilution compounds across rounds: two rounds of 20% each leave a holder with 0.8 × 0.8 = 64% of the original percentage. Also check voting thresholds in your shareholder agreement. An option pool carved out before the round dilutes existing holders only, which effectively lowers the true pre-money price.
Common mistakes
- Confusing pre-money and post-money valuation in a term sheet.
- Ignoring convertible notes or SAFEs that convert in the same round.
- Treating paper value as cash; private shares are illiquid and often carry preferences.
Frequently asked questions
Does dilution mean I lose money?
Not necessarily. If the round is priced above earlier rounds, your stake's value can stay the same or rise.
What is the option pool shuffle?
Requiring the pool to be created in the pre-money valuation, so founders, not the new investor, bear that dilution.
How do I calculate dilution over several rounds?
Multiply the retention factors: for each round, (1 − new shares' percentage).
Sources: Feld, B. & Mendelson, J., Venture Deals, Wiley