Dilution Math Every Founder Should Own
Founders who delegate the dilution arithmetic to advisors get the dilution they deserve. Pre vs post-money, option-pool top-ups, SAFE conversions and anti-dilution — the maths matters more than the multiple.
The short answer
Dilution is not the percentage on the term sheet. It is the percentage on the cap table after the term sheet has done what term sheets actually do: trigger the option-pool top-up, convert any outstanding SAFEs and convertible notes, and apply any anti-dilution provisions from previous rounds. The headline 20 percent dilution on a Series A frequently lands at 28 to 32 percent on the actual cap-table delta. The founders who lose the most equity are not the ones who took the worst term sheets — they are the ones who didn't model the maths themselves.
Key Takeaway: The single most expensive thing in a financing round is the founder who can't model their own cap table. Advisors model it correctly; investors model it correctly; the only person at the table who consistently gets it wrong is the founder. Owning the spreadsheet personally is the cheapest investment a founder will ever make.
Why most founders get this wrong
The arithmetic is genuinely confusing the first time you see it. Pre-money and post-money are calculated from different denominators; option-pool top-ups are usually pre-money but priced as if they were free; SAFE conversions land at different prices depending on the cap and discount; anti-dilution adjustments use one of three methods that produce wildly different outcomes. Founders read the term sheet, see "£10M pre-money on a £3M raise", and assume the dilution is 23 percent. The actual dilution is rarely 23 percent.
The four arithmetic traps:
Pre-money vs post-money confusion. A £10M pre-money on a £3M raise gives £13M post-money. The new investor's stake is £3M / £13M = 23.1 percent. But the founders aren't being diluted from 100 percent to 76.9 percent — existing shareholders (founders, prior investors, employees on the existing option pool) are all diluted pro-rata to make room for the new investor. Founders who held 60 percent pre-round now hold 60 percent × 76.9 percent = 46.1 percent. The "23 percent dilution" affects everyone, not just the founders.
The option-pool shuffle. Investors typically require the option pool to be topped up to 10 to 15 percent of the post-round cap table — but priced into the pre-money valuation. This means the dilution from the option-pool top-up falls entirely on existing shareholders, not the new investor. On a £10M pre-money with a 15 percent post-round option pool requirement, the founders may be giving up another 5 to 8 percent of equity above the headline raise dilution. This is the single largest source of "extra dilution" founders miss.
The stacked-SAFE surprise. A company that raised three SAFEs over 18 months ($500K at a $5M cap, $1M at a $7M cap, $750K at a $10M cap) converts all three at the Series A price. Each SAFE converts at its own discounted or capped price, producing a different number of shares per SAFE. Founders who didn't model the conversion frequently discover at Series A signing that the SAFEs collectively converted to 12 to 18 percent of the cap table — not the 8 to 10 percent they expected.
Anti-dilution mechanics. Series A and B investors typically secure anti-dilution protection. The flavour matters enormously: weighted-average broad-based (the standard) is materially friendlier to founders than weighted-average narrow-based, and full ratchet (rare but devastating) reprices prior investor shares to the new round price as if they had paid it originally. A down round triggers all of these — and founders who didn't read the anti-dilution clause discover the consequence the hard way.
Typical dilution ranges by round
The ranges below are the bands within which most rounds land. Outside these ranges, the founder is either taking unusually good terms (renegotiate hard if you're below) or unusually bad terms (push back if you're above).
| Round | Typical dilution | Drivers of the upper end |
|---|---|---|
| Pre-seed | 15-22% | SAFE conversion at later round; option pool top-up |
| Seed | 18-25% | Multiple-investor rounds with separate allocations; option pool |
| Series A | 18-25% | Option-pool shuffle; stacked SAFE conversion; anti-dilution from seed |
| Series B | 12-18% | Larger absolute raise but on higher base; option pool refresh |
| Down round (any stage) | +5-12% above prior expectation | Anti-dilution adjustment from prior rounds; option-pool re-up |
What "good" looks like
The founder owns the cap-table model. Not "has access to it via the lawyers" — owns it, opens it, runs scenarios, and walks the partner through it personally if asked. The investment is half a day to build and an afternoon per round to update. The return is six-figure to seven-figure equity preservation across the company's life.
1. Build the live cap-table model in week one of the round
Use Carta, Pulley or a well-structured Google Sheet. The model must show: current cap table, every outstanding SAFE/note with its terms, the proposed Series A price, the conversion of each SAFE/note at that price, the option-pool top-up calculation, and the resulting post-round cap table. Run three scenarios — high pre-money, mid pre-money, low pre-money — to see how dilution moves with valuation.
2. Negotiate the option-pool size as a separate line item
The investor will propose 15 percent post-round; founders should counter with 10 to 12 percent based on actual hiring plan for the next 18 to 24 months. The 3 to 5 percent difference is real money — at a £30M post-money it is £900K to £1.5M of founder equity. Frame the negotiation around hiring plan, not principle, and partners typically meet in the middle.
3. Audit every outstanding SAFE and note before signing the term sheet
List every convertible instrument issued. Confirm cap, discount, conversion trigger, and most-favoured-nation clauses. Run the conversion explicitly at the proposed Series A price. The output is the dilution attributable to legacy convertibles — present it on its own line, not buried in "other dilution".
4. Read the anti-dilution clause word-by-word
The default ask is broad-based weighted-average. Anything else (narrow-based weighted-average or — in extremis — full ratchet) materially changes the down-round protection mechanics. If the partner pushes for narrow-based, ask why. If they push for full ratchet, walk unless the round is genuinely distressed. The clause matters most when you hope it will never trigger.
5. Run the down-round scenario before signing the up round
Model what the cap table looks like if the next round is flat or down 20 percent. Anti-dilution adjustments from the current round will compound any future down-round dilution. Knowing the protection mechanics in advance lets you negotiate them now, when leverage is highest. See down rounds: when to accept, when to reprice for the full mechanics.
How to apply it to your round
Dilution discipline is a habit, not an event. Founders who model their cap table monthly between rounds catch problems early — option grants that exceeded budget, SAFE issuances that compounded, founder stock that vested unevenly. By the time the round opens, the model is already current.
Practically:
Pre-round. Run the cap-table model monthly. Audit outstanding convertibles quarterly. Maintain a one-page founder-equity tracker that shows percentage-owned over time and the projected percentage at next round (modelled at three valuation scenarios).
During the round. Update the model in real time as the term sheet evolves. Every change to pre-money, option-pool size, anti-dilution provision, or liquidation preference produces a new cap-table outcome — see it before you accept it.
Post-round. Reconcile the closed cap table to the model. Document the variance (there's almost always a small variance from final option-pool sizing or last-minute SAFE conversions). The reconciliation is what makes the next round's modelling accurate.
Warning: The most common reason founders are surprised by their post-round percentage is that the option-pool top-up was sized to 15 percent post-round but priced into the pre-money valuation. This is not a hidden term — it is in every Series A term sheet. The surprise comes from not modelling it explicitly.
The Bottom Line
Dilution math is the cheapest equity preservation a founder will ever buy. Half a day to build the model, an afternoon per round to update. The compounded saving across a company's life — Series A through to exit — is six to seven figures of equity. The founders who own the spreadsheet defend the percentage; the founders who delegate it accept whatever the term sheet produces.
Related reading
Dilution arithmetic is one component of round-execution discipline. For the broader Series A preparation playbook, see Series A readiness and the valuation benchmarks by sector. For the down-round mechanics that change the dilution maths materially, see down rounds: when to accept, when to reprice. For the bridge-round structures that often precede a down round, see bridge rounds and venture debt as a bridge alternative. For the comp-set discipline that determines the pre-money number you're diluting against, see how to build a defensible comp set.
Own the maths before the term sheet arrives
Eight minutes. Twelve drivers. The starting frame for the asset narrative that lifts the pre-money — and reduces the dilution at any given raise size.