How to Model Dilution Before You Raise
A term sheet quotes a valuation, not your ownership. Before you sign, model how the new money, the option pool top-up, and any converting SAFEs move every stakeholder’s stake - so there are no surprises at close.
The dilution math founders actually need
Dilution is not one number. A priced round dilutes you through the new shares issued to investors, through the option pool the investor asks you to expand (usually pre-money, which quietly falls on founders), and through any SAFEs or notes that convert at this round. Model all three on one pro forma cap table or the post-money split will not match your mental math.
New-money dilution
Investor ownership = Investment ÷ Post-money valuation
Post-money = pre-money + new investment. A $4M raise on a $16M pre-money is a $20M post-money, so investors take 20% and every existing holder is diluted by that 20% before you even account for the pool.
What to gather before you model
Dilution modeling inputs
- Current fully diluted cap table - every share class, option, warrant, and SAFE
- Proposed pre-money valuation and new investment amount
- Required post-money option pool percentage (and whether it is created pre- or post-money)
- Terms of any outstanding SAFEs or convertible notes (cap, discount, conversion trigger)
- Any pro rata rights existing investors intend to exercise
| Stakeholder | Pre-round | Post-round | Dilution |
|---|---|---|---|
| Founders | 70.0% | 52.5% | −17.5 pts |
| Existing investors | 20.0% | 15.0% | −5.0 pts |
| Employee pool | 10.0% | 12.5% | +2.5 pts |
| New investor | 0.0% | 20.0% | +20.0 pts |
A worked example
- 1Start from the current fully diluted share count.
- 2Add the pool top-up shares required to hit the target post-money pool.
- 3Add the investor’s new shares at the agreed price per share.
- 4Convert any SAFEs at their cap or discount, whichever is more favorable to the holder.
- 5Recompute each stakeholder’s ownership against the new fully diluted total.
How Fintra models dilution
Fintra’s cap-table and dilution-modeling engine keeps your live cap table as the source of truth, then lets you spin up scenario forks - new round, pool top-up, SAFE conversion - without touching the real record. Every scenario shows post-money ownership and per-stakeholder dilution side by side, and you can carry the winning scenario straight into the round close.
- Scenario forks that never mutate your live cap table
- Automatic SAFE and note conversion at cap or discount
- Pre- vs post-money pool modeling so the shuffle is explicit
- Ownership and dilution shown per stakeholder, not just in aggregate
Frequently asked questions
What is the option-pool shuffle?
It is when an investor requires you to create or expand the employee option pool before the round closes, so the new shares dilute existing holders rather than the incoming investor. Modeling it pre-money reveals how much of the dilution actually lands on founders.
Does a higher valuation always mean less dilution?
Not necessarily. A higher pre-money reduces the investor’s percentage, but a larger required option pool or converting SAFEs can offset it. You have to model all three together to see your true post-money ownership.
How do SAFEs affect dilution at a priced round?
SAFEs convert into equity at the priced round, usually at their valuation cap or a discount to the round price. Those converted shares dilute everyone, so you must include them in the pro forma before you calculate final ownership.
Can I model several scenarios at once?
Yes. In Fintra you fork the live cap table into multiple scenarios - different pre-money values, pool sizes, or raise amounts - and compare post-money ownership and dilution side by side before committing to any of them.
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Model the raise, the pool, and every SAFE on one pro forma cap table.
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