Use it to compare term sheets, plan how much to raise and understand the real cost of a bigger option pool before you negotiate.
How dilution is calculated
Investor % = Investment ÷ (Pre-money + Investment)
- Pre-money
- Company value agreed before the new money
- Post-money
- Pre-money plus the amount raised
- ESOP pool
- Shares reserved for employees, as a % of post-money
- Founders after
- Founders before × (100% − investor % − ESOP %)
Investors usually require the ESOP pool to be created before their money comes in (the option pool shuffle), so the pool dilutes existing shareholders but not the new investor. This calculator follows that convention.
A higher valuation or a smaller round reduces dilution. Negotiating the pool size down is often as valuable as negotiating the valuation up.
Before you sign a term sheet
Dilution is only one part of a funding deal. Check these terms with your advisors too.
- Liquidation preference and whether it is participating.
- Anti-dilution protection and how it is calculated.
- Board seats, vetoes and founder vesting.
- Whether valuation is on a fully diluted basis.