How to Calculate Dilution: The Founder's Equity Formula

Every time you raise a funding round, issue options, or bring on a co-founder, your ownership percentage in the company decreases. That's dilution. Understanding how to calculate it — and how it compounds across multiple rounds — is one of the most important financial concepts for any founder.

The math is straightforward. The implications are enormous.

What Is Dilution?

Dilution occurs when new shares are issued, reducing existing shareholders' percentage ownership of the total shares outstanding. The total value of the company may increase, but each share represents a smaller percentage of the whole.

Dilution happens in several scenarios:

• Issuing shares in a funding round to investors
• Creating or expanding an employee stock option pool (ESOP)
• Granting equity to advisors or co-founders
• Convertible notes and SAFEs converting into equity

Founders typically experience 15–25% dilution per funding round.

The Formula

Post-round ownership:

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Post-Round Ownership % = Pre-Round Shares Held