What Is Equity Dilution and How Do You Calculate It?

Equity dilution is the fall in each shareholder’s percentage when a company issues new shares: ownership after a round equals ownership before, times one minus the share the round sells. On Carta’s 2025 data the median priced round from seed to Series C sold 16% of the company, and the median founding team held 36% after its Series A.

Founders negotiate the valuation, but the price of a share is the valuation divided by a share count, and the documents define that count. The option pool, a SAFE’s conversion terms, the anti-dilution formula and, for listed companies, diluted earnings per share all move dilution by deciding which shares sit in the denominator.

The equity dilution formulas in one place

Quantity	Formula	Example
Share sold in a priced round	New shares ÷ shares after the round = investment ÷ post-money valuation	$3M ÷ $15M = 20%
Post-money valuation	Pre-money valuation + investment	$12M + $3M = $15M
Price per share	Pre-money valuation ÷ fully diluted shares before the round, new pool included	$48M ÷ 14.4M = $3.33
Ownership after one round	Ownership before × (1 − share sold)	62% × 0.80 = 49.6%
Ownership after several rounds	Starting ownership × (1 − d₁) × (1 − d₂) × …	90% × 0.775 × 0.717 × 0.759 = 37.9%
Post-money SAFE	Purchase amount ÷ post-money valuation cap	$1M ÷ $10M = 10%

Source: the SAFE formula is Y Combinator’s; the examples are computed in this article from the worked company below.

The calculator below shows the equity dilution one priced round causes for each holder, from the founders’ and existing investors’ current shares (the option pool is the remainder), the new investment and the pre-money valuation.

Its switch adds a new pool of 10% of the post-money, created before the round on top of the existing pool. On the starting inputs (founders at 62%, existing investors at 23%, the pool at 15%, $3M raised on a $12M pre-money) the founders end at 49.6%. With the new pool they end at 43.4%, so the pool costs them 6.2 points, half of the 12.4 points the new money takes. The calculator covers one round; it does not convert SAFEs or apply anti-dilution, which the sections below work through.

What is equity dilution, and what does it cost founders?

Equity dilution changes the denominator and leaves the numerator alone. A founder holds the same number of shares after a round; the total they are divided by grows each time the company issues stock to investors, employees or converting noteholders. Chemistry has the exact equation. “To dilute a solution means to add more solvent without the addition of more solute”, and the concentration falls in proportion, so c₁V₁ = c₂V₂ (Wikipedia). Put the founders’ shares in place of the solute and the share count in place of the volume, and the equation holds to the share. In the company worked through below, 90% of 10.0M shares and 37.9% of 23.7M shares are the same 9.0M shares.

The chemistry stops at value. Water arrives with nothing, while new shares arrive with cash, so a smaller percentage of a company that now holds the money can be worth more. Between the Series A and the Series B in that company, the founders’ stake falls from 50.0% to 37.9% while its value at each round’s price rises from $30.0M to $68.3M. Value falls only when shares are sold for less than they are worth.

Two costs follow the percentage whatever the price. The first is control. In Steven Kaplan and Per Strömberg’s study of 200 venture investments made from 1987 to 1999, “Founders relinquish voting control by the second VC round in all but 11.5% of the financing rounds” (Kaplan & Strömberg, 2000). The second is the payoff after preferences. Robert Hall and Susan Woodward followed 20,961 US venture-backed companies from 1987 and found that “73 percent of all startups deliver zero exit value” to their founders (Hall & Woodward, 2008). A founder’s percentage is a claim on what remains after the preferred stock is paid.

How do you calculate dilution from seed to Series B?

Multiply round by round, on the full share count. Hall and Woodward, who traced founders’ stakes through successive rounds, write the rule as a recursion: a holder’s share after a round equals its share before, times the pre-money value divided by the post-money value (Hall & Woodward, 2007). The rule is exact when every new share is bought at the round price. In a modern round two other issues ride along at lower prices: SAFEs converting at their caps, and the option pool’s top-up.

Take a hypothetical company. Two founders hold 9.0M shares and a 1.0M-share option pool is reserved, so they own 90% fully diluted. They raise a seed on two post-money SAFEs, $1.0M at a $10M cap and later $2.0M at a $16M cap. A Series A follows: $12M on a $48M pre-money, with the unallocated pool topped up to 10% of the post-money. The Series B raises $30M on a $150M pre-money on the same pool terms, by which time the company has granted 1.9M options.

A hypothetical company from two SAFEs to a Series B, fully diluted

	Start	SAFEs converted	After Series A	After Series B
Founders	90.0%	69.75%	50.0%	37.9%
Option pool, granted and unallocated	10.0%	7.75%	13.9%	18.0%
SAFE holders	–	22.5%	16.1%	12.2%
Series A investors	–	–	20.0%	15.2%
Series B investors	–	–	–	16.7%
Fully diluted shares	10.0M	12.9M	18.0M	23.7M
Price per share	–	$0.775 and $1.24	$3.33	$7.58

Source: CX Cash calculation on a hypothetical company. The SAFEs convert at their caps divided by the company’s capitalization, as Y Combinator’s post-money SAFE provides; each round’s price is the pre-money divided by the pre-money share count, new pool included, as in the NVCA model term sheet.

The headline numbers (SAFEs 22.5%, Series A 20%, Series B 16.7%) multiply to 46.5% for the founders. They end with 37.9%. The whole 8.6-point gap comes from the two pool top-ups, which existing holders fund before the new money arrives. The founders lose 28.3% of their stake in the Series A and 24.1% in the Series B, against headlines of 20% and 16.7%. A full cap table records the same rows share by share, with the legal record behind them. The SAFE holders bought at $0.775 and $1.24 a share, 23% and 37% of the Series A price, which is what the earlier risk earned them.

How much dilution is typical in each round?

Carta, whose software keeps the cap tables of more than 50,000 startups, publishes median equity dilution by stage (Carta, 2025; Dowd, 2025). The medians have fallen for three years: across rounds from seed to Series C, the median share sold was 19% in 2023, about 18% in 2024 and 16% in 2025, with Series B down to 12.9% (Carta, 2026).

Median dilution and founder ownership by stage, Carta data

Stage	Median share sold in the round	Median founding-team stake after the round	Median employee pool
Seed	20% (Q4 2024); 18.8% outside healthcare (Q1 2025)	56%	12.1%
Series A	16.8% outside healthcare, 21.8% in healthcare (Q1 2025)	36% (37.5% in digital industries, 30.5% in physical ones)	–
Series B	12.9% (2025), from 15% in Q4 2024	27.3% for AI teams, 21.8% for others	–
Series C	–	16.1%	16.8%
Seed to Series C, pooled	16% (2025), 19% two years earlier	–	–

Source: Carta, State of Private Markets for Q4 2024 and for 2025; Dowd (2025) on healthcare dilution; Walker and Dowd, Founder Ownership Report 2026, on rounds raised from 2021 to 2025. The round and ownership medians describe different sets of companies.

Rounds compound by multiplication, so four rounds at the 16% median leave a holder with 49.8% of its starting stake. The founders’ line falls faster, because pools and converting SAFEs come out of it too. By Series C the median employee pool, at 16.8%, is larger than the median founding team’s 16.1% (Walker & Dowd, 2026). Investors held most of the company long before these data: in Kaplan and Strömberg’s 1987 to 1999 sample, the venture investors held roughly half the cash flow rights on average, the founders roughly 30% and others roughly 20%.

Pre-money vs post-money: which valuation sets the price?

The pre-money valuation prices the company before the new money; the post-money adds the investment, and the share sold is the investment divided by the post-money. On the calculator’s starting inputs, $3M on a $12M pre-money sells 20% and leaves a 62% founder with 49.6%. Read the same $12M as a post-money valuation and the round sells 25%, leaving the founder 46.5%. One word in the term sheet decides 3.1 points of equity dilution.

The price per share is the pre-money divided by a share count. The model term sheet of the National Venture Capital Association (NVCA) prices a Series A on “a fully-diluted pre-money valuation” that includes an unallocated employee option pool sized as a percentage of the post-money capitalization (NVCA, 2020). Two offers at the same pre-money can therefore carry different prices.

Post-money SAFEs fixed the percentage before the price. Y Combinator released its post-money SAFE in September 2018. Its user guide gives the reason in one line: “The biggest advantage of the post-money safe is that the amount of ownership sold is immediately transparent and calculable for both the founder and the investor” (Y Combinator). The ownership is the amount divided by the cap. Among the SAFEs in Wilson Sonsini’s 2025 deals, 81% used a post-money valuation cap (Wilson Sonsini, Full-Year 2025).

What are fully diluted shares, and why does the count matter?

Fully diluted shares count every share that exists or that the company has committed to: issued common and preferred stock, granted options, the unallocated pool, and SAFEs and notes as if converted. Shares outstanding count only the issued stock. Investors price on the fully diluted count, so a larger count gives a lower price, and more equity dilution, for the same valuation.

The documents decide what goes in. Y Combinator’s guide sets out how the post-money SAFE changed the list. Its “Company Capitalization” includes the other SAFEs and convertible notes, which the original SAFE left out, and it excludes the option pool increase made in the priced round, which the original included. The first change fixes each SAFE holder’s percentage. The second makes the SAFE holders share the Series A pool top-up with the founders, as they do in the worked company, where their 22.5% falls to 16.1%. The same guide notes that a sale of the company uses a different denominator, which leaves out the unissued pool because “the acquirer in a Liquidity Event only buys the company’s outstanding equity”.

How does the option pool shuffle move dilution onto founders?

New investors usually ask for an unallocated pool sized as a share of the post-money and created in the pre-money, so the existing holders fund it alone. On 10 April 2007 the Venture Hacks blog described a founder who negotiates a $2M investment on an $8M pre-money valuation, divides by 6M existing shares to reach $1.33 a share, and then finds $1.00 in the term sheet. The pre-money included a pool of 20% of the post-money, “a game that we like to call: Option Pool Shuffle”. The effective valuation was $6M, 25% below the headline (Venture Hacks, 2007).

The author’s remedy was a hiring plan. In his example, a plan that justified a 10% pool raised the share price by 17%, to $1.17. He advised against asking for the pool in the post-money: “Your investor’s norm is that the option pool goes in the pre-money.”

In the worked company, the Series A pool top-up cut the effective pre-money from $48M to $43.0M, 10.4% below the headline (our arithmetic), and cost the founders 5.8 points. The pool pays for real hires, so the question is its size. It also refills as leavers forfeit options, which affects how large a pool needs to be before the next round.

How do SAFEs and convertible notes cause equity dilution?

A SAFE or a convertible note turns into shares at the next priced round, at the cap price or at the round price less a discount, whichever is lower. In Wilson Sonsini’s 2025 deals, 93% of SAFEs carried a valuation cap, up from 86% in 2024, the median cap rose from $16M to $20M, and the median discount stayed at 20%. Notes are fading: on Carta they made up a record low of 7% of pre-seed rounds in the first quarter of 2026 (Carta, 2026). The trade between the two instruments, interest and maturity against the post-money stack, is set out in the comparison of SAFEs and convertible notes.

Post-money SAFEs stack on the founders. Each holder’s percentage is fixed, so “the safes are not diluted by each other”, and every new SAFE comes out of the founders and option holders. A third SAFE of $1M at a $20M cap in the worked company would take 5.0%. It would cut the founders’ stake before the Series A from 69.75% to 65.25%, while the first two SAFEs kept their 22.5% (our arithmetic). Y Combinator’s guide states the limit plainly: “Raising more than the Post-Money Valuation Cap would result in negative ownership for founders”. Two side terms add dilution later:

• Most-favoured-nation (MFN) clause. An uncapped MFN SAFE lets its holder adopt the terms of a later SAFE if they are better, once and without picking terms from several. A cheap later SAFE re-prices the earlier one too.
• Pro rata side letters. They let SAFE holders buy into the round in which they convert. Y Combinator’s formula sizes the extra: the new investors’ percentage divided by one minus the SAFEs’ percentage, less the new investors’ percentage. Had both SAFE holders in the worked company held side letters, the Series A would have had to sell 5.8 more points for its new investors to keep 20% (our arithmetic). The guide warns founders that otherwise “you may end up taking more dilution than you anticipated”.

How do anti-dilution provisions work, and whom do they protect?

Anti-dilution clauses protect a preferred investor’s price, and leave its percentage to dilute like anyone else’s. In the NVCA’s model charter the clause applies only when the company issues shares “without consideration or for a consideration per share less than the Conversion Price” of the preferred. It then lowers that conversion price, so each preferred share converts into more common (NVCA, 2025). Grants under an approved employee plan are excluded.

The charter offers two forms. A full ratchet resets the conversion price to the new issue’s price, however few shares are sold. The weighted average sets CP2 = CP1 × (A + B) ÷ (A + C). CP1 is the old conversion price, B the shares the new money would have bought at CP1, C the shares actually issued and A the shares counted as outstanding.

CP2 = CP1 × (A + B) ÷ (A + C)

A is where broad-based and narrow-based clauses differ. The charter’s commentary says the distinction depends on the formula “for calculating the number of outstanding shares of Common Stock”. Its broad-based A counts common stock, outstanding options and convertibles, preferred included; “An even broader formula would include in that calculation all shares reserved under stock plans”; a narrow one might count only the common actually outstanding. The larger A is, the smaller the adjustment. To see by how much, suppose the worked company’s Series B instead raises $15M at $2.50 a share, 25% below the Series A price, with no new pool.

The same down round under each anti-dilution formula

Formula	Shares counted as A	Series A conversion price	Series A shares after conversion	Founders after the round
No adjustment	–	$3.332	3.60M	37.5%
Broader weighted average	18.0M	$3.124	3.84M	37.1%
Broad-based weighted average (NVCA)	17.4M	$3.119	3.85M	37.1%
Narrow-based weighted average	9.0M	$2.999	4.00M	36.9%
Full ratchet	–	$2.499	4.80M	35.7%

Source: CX Cash calculation on the hypothetical company above; formula and share-count definitions from the NVCA model charter (2025) and its commentary. Only the Series A is protected: the SAFE preferred converts below $2.50 and is unaffected. 1.9M options outstanding, none exercised.

At the new price, the broad formula moves $0.62M of value to the Series A, the narrow one $1.00M and the full ratchet $3.00M, enough to keep the Series A’s $12M whole. The founders, employees and SAFE holders pay, and so does the new investor unless it prices on the adjusted count: under the ratchet its 25.0% becomes 23.8%. The model charter lets the protected holders waive the adjustment in writing, so they can give it up to help a round close.

Ratchets have nearly disappeared. Kaplan and Strömberg found anti-dilution protection in 94.8% of rounds from 1987 to 1999, a full ratchet in 19.4% and a weighted average in 75.4%. After the dot-com crash, 29% of the Bay Area financings Fenwick & West tracked in the first quarter of 2002 had a ratchet, and 20% in the second (Fenwick & West, 2002). In Wilson Sonsini’s 2025 deals, broad-based weighted average covered 100% of rounds and ratchets none, after 1% or less in each year from 2021.

How often does a down round trigger the clause?

A down round sells shares below the previous round’s price, the usual event that triggers price protection. On Carta, down rounds peaked at 22% of new rounds in 2023, ran at 19% in the last quarter of 2024 and fell to 11.4% in the first quarter of 2026 (Carta, 2026). Cooley, counting the deals it handled, put them at 12.1% in the second quarter of 2026, and pay-to-play terms, which penalise investors who skip the new round, at 8.4% (Cooley, 2026). In Wilson Sonsini’s 2025 down rounds at Series B or later, 42% carried pay-to-play.

When the clause fires, the shift is measurable. Hall and Woodward estimated that down-round anti-dilution provisions moved venture investors’ ownership up, and that of founders, angels and employees down, by an average of 4.8 percentage points.

Which levers limit equity dilution for founders?

None of these levers is free: each gives up cash, control, hiring room or a repayment obligation. Every one cuts equity dilution through the share sold, the count it is sold on, or both:

• Raise less, later. Carta’s guidance to founders is blunt: “The money you borrow early on in your company is the most dilutive” (Carta). The third SAFE in the worked company cost its founders 4.5 points for $1M.
• Raise at a higher price, knowing what it costs. Price and control trade against each other. In Noam Wasserman’s study of 6,130 US startups, each additional level of founder control (the board, the CEO role) on average reduced the pre-money valuation by 17.1% to 22.0% (Wasserman, 2017).
• Size the pool from a hiring plan, and ask what the investor’s figure is based on.
• Cap pro rata side letters on SAFEs, or the Series A expands to fit them.
• Borrow part of the need. A venture lender’s guide calls “reducing dilution for founders and management” the core value proposition of venture debt (SVB). Hercules Capital, a listed lender, takes warrants for 3% to 20% of the principal at the latest round price (Hercules, 2026). A $5M loan with 10% coverage at the worked company’s Series A price adds 0.83% to the share count, against 7.7% for $5M of equity. The loan must be repaid, and venture debt’s full cost includes fees and covenants.
• Let investors buy secondary. A secondary sale moves existing shares, so “no new shares are created, and the ownership percentage of other shareholders remains unchanged” (Carta). Startups on Carta ran 396 tender offers in 2025, up 62% from 2024.

The levers interact: a smaller pool raises the price per share, and a loan can shrink the round. CX Cash is being built to model rounds like these side by side, and it is free during its private beta.

What does equity dilution mean for employees and option holders?

An option keeps its number of shares and its strike price through later rounds, so equity dilution shows up only in its percentage. In the worked company, 90,000 options granted after the Series A are 0.50% of the company then and 0.38% after the Series B, while the preferred price behind them rises from $3.33 to $7.58. New grants under the approved plan do not trigger the investors’ anti-dilution clause, so the pool can grow without repricing the preferred.

An option holder needs three numbers to read a grant: the fully diluted share count, to turn shares into a percentage; the latest preferred price; and the preferences that rank ahead of common stock. The last matters most. Hall and Woodward put it starkly: the founders’ reward “is zero in almost three quarters of the outcomes”, and employees’ options convert into the same common stock.

How does share dilution work in listed companies?

Listed companies face equity dilution through the same channels: new shares sold in follow-on offerings, options and restricted stock vesting, and convertible securities converting. A secondary offering by existing holders adds no shares. The accounting measure is diluted earnings per share. Under IAS 33, potential shares count only when their conversion “would decrease earnings per share or increase loss per share from continuing operations” (IAS 33).

Options count net. The standard assumes they are exercised and that the proceeds buy back shares at the period’s average market price; only the difference enters the denominator. A company with 1,000,000 options at a $10 strike and an average price of $25 adds 600,000 shares to diluted EPS, where a startup’s fully diluted count would add all 1,000,000.

Figma’s 2025 prospectus shows both cases (Figma, 2025). In 2023, options and warrants added 18.8M shares, 11.2%, to its 168.4M weighted basic shares, and diluted EPS was $1.62 against $1.70 basic. In 2024, with a $732M net loss, basic and diluted loss per share were both $3.74, because counting options would have shrunk the loss per share. Figma names “the treasury stock method” for its options and the if-converted method for its preferred stock.

An IPO prospectus uses “dilution” in a third sense. Regulation S-K requires issuers to disclose “the amount of the immediate dilution from the public offering price which will be absorbed by such purchasers”, measured against net tangible book value per share (17 CFR 229.506). Figma’s buyers paid $33.00 a share and took immediate dilution of $30.53, 92.5% of the price. That figure measures book value, and a buyer’s percentage of the company does not enter it.

Equity dilution is set by the count each round is divided by

Equity dilution is one multiplication per round, and the factor in each round depends on the share count it is computed on. In the worked company the headline rounds account for a fall from 90% to 46.5%; the two pool top-ups take the founders to 37.9%. A post-money SAFE’s capitalization, the A in an anti-dilution formula and the potential shares in diluted EPS are the same kind of decision. Read the denominator before the valuation.

Sources and notes

• Carta (2025). State of Private Markets: Q4 and 2024 in Review; Dowd, K. (2025), Why dilution tends to be higher in healthcare: a look at the data.
• Carta (2026). State of Private Markets: 2025 in Review; State of Private Markets: Q1 2026; State of Pre-Seed: Q1 2026; Walker, P. and Dowd, K., Founder Ownership Report 2026.
• Carta (2025). Share dilution (learning guide); Carta (2026), The secondary market, explained.
• Cooley LLP (2026). Q2 2026 Venture Financing Report.
• Fenwick & West LLP (2002). Trends in Legal Terms in Venture Financings in the San Francisco Bay Area, second quarter 2002.
• Figma, Inc. (2025). Prospectus, Form 424B4.
• Hall, R. E. and Woodward, S. E. (2007). The incentives to start new companies: evidence from venture capital. NBER Working Paper 13056.
• Hall, R. E. and Woodward, S. E. (2008). The burden of the nondiversifiable risk of entrepreneurship. NBER Working Paper 14219; published in American Economic Review 100(3) (2010).
• Hercules Capital (2026). Annual report on Form 10-K for 2025.
• International Accounting Standard 33, Earnings per Share, as adopted in Commission Regulation (EU) 2023/1803.
• Kaplan, S. N. and Strömberg, P. (2000). Financial contracting theory meets the real world: an empirical analysis of venture capital contracts. NBER Working Paper 7660; Review of Economic Studies 70 (2003).
• National Venture Capital Association. Model Term Sheet (2020); Model Amended and Restated Certificate of Incorporation, with commentary (October 2025).
• Nivi (2007). The option pool shuffle. Venture Hacks, 10 April.
• US Securities and Exchange Commission. Regulation S-K, Item 506 (17 CFR 229.506), Dilution; current text, read October 2026.
• SVB. How does venture debt work, startup insights guide (read October 2026).
• Wasserman, N. (2017). The throne vs. the kingdom: founder control and value creation in startups. Strategic Management Journal 38(2), 255–277.
• Wikipedia (2026). Dilution (equation).
• Wilson Sonsini Goodrich & Rosati. The Entrepreneurs Report: Private Company Financing Trends, Full-Year 2025.
• Y Combinator (2018, revised 2023). Post-Money Safe User Guide.

Round, ownership and deal-term figures come from Carta, Cooley and Wilson Sonsini, whose samples are the companies on Carta’s platform and the deals each law firm handled; Fenwick & West’s 2002 figures cover Bay Area technology financings. The company in the worked example, its down-round variant, its employee grant and its venture loan are hypothetical, and every figure for them, like any other percentage given without a citation, is our arithmetic on the terms stated.