Dilution across rounds: how your stake shrinks, round by round.
Each round sells a slice of the company. Your percentage falls each time, and the cuts compound. The question is whether the company grows faster than your stake shrinks.
The short answer
Each new round multiplies everyone's ownership by the share the round leaves behind. Two rounds that each sell a fifth leave founders with less than two thirds, before any option pool. Plan your raises together, not one at a time.
Example: two rounds that each sell 20%, no option pool
64% founders keep after both rounds
Illustrative: 100% x 0.8 = 80% after seed, 80% x 0.8 = 64% after Series A. Not a norm.
- Founders 64%: 64%
- Seed investors 16%: 16%
- Series A investors 20%: 20%
Why dilution compounds
A round dilutes everyone who already owns shares, including earlier investors. In the example, seed investors own 20% after the seed round and 16% after the Series A, because the new round takes 20% of everyone's stake. Founders fall from 100% to 80% to 64%.
What else dilutes you
SAFEs and convertible notes convert into shares at the next priced round, often at a lower price than new investors pay. Investors may also ask you to create or enlarge the option pool before the round, so the cost falls on existing holders. Model all of these together.
Planning ahead
- What will founders own after this round and the next one, fully diluted?
- Is the option pool top-up counted in the pre-money or the post-money?
- What do all outstanding SAFEs and notes convert into?
- Does this round fund the milestones that justify a higher next valuation?
Terms to know
Dilution
The fall in your ownership percentage when new shares are issued.
Pool top-up
Adding shares to the option pool, often required before a priced round.
Pro-rata
The right to invest in later rounds to keep your percentage.
Does your round size match the milestones in your deck?
Raising too much dilutes you; too little forces another round early. Upload your deck and we check that the ask and the plan line up.
Questions founders ask
Is dilution bad?
Not by itself. A smaller share of a much more valuable company can be worth far more. Dilution is a cost to weigh against what the money lets you build.
Do earlier investors get diluted too?
Yes, unless they invest again in the new round, for example through pro-rata rights.
Sources
Sources: standard ownership arithmetic; common US venture practice. Not legal or tax advice.
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