About Equity Dilution Calculator
The Equity Dilution Calculator helps founders and startup teams understand how their ownership percentages change during fundraising rounds. This tool provides clarity on the impact of investments on shareholding structure and company valuation.
Understanding Equity Dilution
Equity dilution occurs when a company issues new shares, resulting in existing shareholders owning a smaller percentage of the company. While dilution reduces percentage ownership, it often increases the value of remaining shares due to company growth and increased valuation.
Key Terms Explained
Pre-money Valuation:
Company value before the investment round
Post-money Valuation:
Company value after the investment (Pre-money + Investment)
Diluted Ownership:
New ownership percentage after investment
Managing Dilution Effectively
Strategic Planning
- Plan funding rounds ahead
- Build financial projections
- Consider alternative financing
- Maintain good governance
- Track performance metrics
Value Protection
- Negotiate fair terms
- Structure ESOP carefully
- Consider pro-rata rights
- Monitor cap table
- Document all changes
Best Practices Summary
Regular Monitoring:
Keep track of ownership changes and valuation impacts
Documentation:
Maintain clear records of all equity-related transactions
Communication:
Keep all stakeholders informed of ownership changes
Remember to consult with legal and financial advisors when making significant decisions about equity dilution. This calculator provides estimates and should be used as part of a comprehensive approach to managing your company's capitalization.
