EQUITY DILUTION CALCULATOR.
This calculator shows how to determine a founder's equity dilution after a single round of fundraising/capital increase. You can change any of the values below, and this will auto-update all other inputs.
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At the beginning of a startup journey, founders own the full number of the startup's issued shares, with each founder's ownership stake represented as a percentage. This percentage is calculated as (shares owned / total shares * 100). As startups grow, founders may create option pools, give share options to advisors, employees, board directors as remuneration for their work, sign convertible debt with noteholders, and investment term sheets investors to receive capital. Along this journey, startups usually maintain a capitalization table, that shows the breakdown of equity ownership by stakeholders and the type of equity they possess e.g. common shares, preferred shares, ... etc. The sum of all individual equity stakes equals to 100%.
a post-money valuation example
Let's assume we have a startup with 1000 issued shares. When this startup announces a fundraising-round e.g. "£100,000 for 10%" this means that
- the startup post-money valuation will be (100% / 10%) * £100,000 = £1,000,000
- the startup pre-money valuation is £1,000,000 - £100,000 = £900,000
- Each of the issues 1000 shares is worth £900,000 / 1000 = £900
- to raise the additional £100,000, the startup issues £100,000 / £900 ~ 111 new shares
After fundraising has been completed, the startup's total numbers of shares will be 1000 + 111 = 1111. With additional shares issued, the equity stakes of shareholders (founders, advisors, employees, board directors, ... etc) are diluted i.e. diminish proportionally to the equity sold to investors.
equity dilution calculator
To use the calculator, simply enter the currency, the amount you are raising, the post-money equity percentage you are offering to investors, and the number of shares issued before the fundraising round. The calculator will compute all other values.
FREQUENTLY ASKED QUESTIONS.
- What is equity dilution?
Equity dilution occurs when a company issues new shares, reducing the ownership percentage of existing shareholders. This usually happens during fundraising rounds to attract new investors.
- How can I calculate my equity dilution?
To calculate your equity dilution, use the formula:
Dilution % = (New Shares Issued / (Existing Shares + New Shares Issued)) * 100 - What is a pre-money valuation?
Pre-money valuation is the value of a company before new capital is added from a fundraising round. It is calculated by subtracting the amount of new capital from the post-money valuation.
- What is a post-money valuation?
Post-money valuation is the total value of the company after new capital is added from a fundraising round. It includes the value of the existing shares plus the new investment.
- How does issuing new shares affect existing shareholders?
Issuing new shares dilutes the ownership percentage of existing shareholders. Although their percentage ownership decreases, the actual value of their shares might increase if the new investment leads to company growth.
CREDITS & REFERENCES
For the avoidance of doubt, Neos Chronos is not affiliated with and has no financial interest in any of the companies mentioned in this article. All names and trademarks mentioned herein are the property of their respective owners. Please observe the Neos Chronos Terms of Use.
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