Startup Equity Dilution: A Founder’s Calculator for Every Round

Every startup equity dilution calculator runs the same three lines of arithmetic, which is why founders who understand the maths stop needing the tool. New shares are issued, the total share count goes up, and everyone who does not buy into the round owns a smaller percentage of a bigger company. The interesting question is never “how much am I diluted”, it is “what am I diluted by, and did I agree to it before I saw the term sheet”.

This guide works through a UK cap table from an SEIS round to a Series A, shows where founders lose more than they expect, and sets out the numbers you should model before you start raising.

The one formula behind every dilution calculator

Post-money valuation is pre-money valuation plus the amount raised. The investors’ stake is the amount raised divided by the post-money valuation. Everything else follows.

Raise £500,000 on a £2,000,000 pre-money and the post-money is £2,500,000. The round buys 500,000 / 2,500,000, which is 20 per cent. Every existing shareholder is multiplied by 0.8. A founder on 50 per cent walks out on 40 per cent.

Two details trip people up. First, dilution is multiplicative across rounds, not additive: three consecutive 20 per cent rounds leave you with 0.8 x 0.8 x 0.8, or 51.2 per cent of what you started with, not 40 per cent. Second, share price is post-money valuation divided by the fully diluted share count after the round, and “fully diluted” is where the arguments live.

A worked UK cap table, incorporation to Series A

Two founders, 50/50, one million ordinary shares between them.

Stage one: SEIS round. They raise £200,000 on a £800,000 pre-money, so a £1,000,000 post-money and 20 per cent to investors. The company can take a maximum of £250,000 under the Seed Enterprise Investment Scheme, and only while it has under £350,000 of gross assets, fewer than 25 full-time equivalent employees and less than three years of qualifying trade. Founders are now on 40 per cent each.

Stage two: the option pool. Before the seed round, the incoming lead asks for a 10 per cent unallocated pool. Created pre-money, that pool comes entirely out of the existing shareholders. Founders drop from 40 to 36 per cent each and the SEIS investors from 20 to 18 per cent, before a penny of new money arrives.

Stage three: seed round. £1,500,000 on a £6,000,000 pre-money is a £7,500,000 post-money and 20 per cent to the new investors. Everyone else is multiplied by 0.8. Founders are on 28.8 per cent each, SEIS investors on 14.4 per cent, the pool on 8 per cent.

Stage four: Series A. £6,000,000 on an £18,000,000 pre-money is 25 per cent, plus the lead wants the pool topped back up to 10 per cent post-round. After both, each founder holds somewhere near 20 per cent and the pair together hold about 40 per cent.

That trajectory, roughly half the company between the founders at Series A, is the normal outcome of a well-run UK venture path. Ending up well below it usually means too many rounds, too much raised too early, or a pool topped up more often than the hiring plan justified.

The option pool shuffle

This is the single biggest gap between what a naive calculator tells you and what the term sheet does. If the pool is created or expanded in the pre-money, the founders and prior investors pay for it. If it is created post-money, everyone including the new investor pays. The difference on a 10 per cent pool in a 20 per cent round is several points of founder ownership, and it is negotiable.

The defensible position is arithmetic, not principle: build a hiring plan for the next 18 to 24 months, price the roles at market equity, total it, and propose that number. If the plan needs 6 per cent and the investor asks for 12 per cent, you are being asked to pre-fund hires nobody has planned. Pools in the UK are usually granted as EMI options, which carry favourable tax treatment where the company and the employee qualify. HMRC sets out the conditions in its guidance on Enterprise Management Incentives.

Convertibles: dilution you have already agreed to

Advance subscription agreements and SAFEs do not dilute you when they are signed. They dilute you later, at a moment you have less control over, and the terms decide how much.

A discount converts the note at a percentage below the round price, so a £250,000 ASA at a 20 per cent discount buys the same shares £312,500 would have bought at the round price. A valuation cap is stronger: if the cap is £4,000,000 and you raise at £12,000,000 pre-money, the note converts as though the company were worth £4,000,000, and the holder takes three times the equity per pound. Founders who raise a large uncapped-in-their-head bridge and then have a very good year discover the cap was the expensive term all along.

Model every outstanding instrument at conversion before you sign the next one. The stack of small convertibles is where cap tables go wrong quietly.

What else eats founder equity

Anti-dilution provisions. Standard UK seed and Series A documents carry broad-based weighted average anti-dilution, which adjusts prior investors’ conversion in a down round. Full ratchet, which reprices their entire holding at the new lower price, is punitive and rare outside distressed rounds. Know which you have signed.
Advisor and founder-adjacent grants. Half a point here and there is real money at exit and is often granted informally. Put it through the pool.
Bridge rounds. A bridge at a flat or lower valuation dilutes more per pound raised than the priced round it precedes.
Leaver provisions. Founder shares are usually subject to reverse vesting over three or four years. Leaving early does not dilute your co-founder, but it can hand a large block back to the company.

Building your own model in a spreadsheet

Skip the online calculators and build it once. You need four columns: shareholder, shares held, percentage, and a note. Model in shares, not percentages, because percentages hide the option pool question and cannot handle conversions.

For each future round, add rows for the new investor and any pool top-up, calculate the new share issuance from the post-money percentage you have agreed, and let the percentages recompute. Run three cases: the plan, a smaller round at the same valuation, and a flat round with full conversion of every outstanding instrument. If the pessimistic case leaves the founding team under about 25 per cent before Series B, the fundraising plan needs rethinking, because investors at later stages want the operating team meaningfully incentivised.

Keep the model reconciled to reality. Every allotment has to be filed at Companies House on form SH01 within a month, and the statutory register is the legal record, not your spreadsheet. For a picture of how much later-stage capital is available once you get there, the doubled limits under the Enterprise Investment Scheme, now £10 million in any 12 months and £24 million over a company’s lifetime for most companies, are worth planning around. More founder guides are on Idea London.

Frequently asked questions

How much equity should founders keep after a seed round?

A common UK pattern is founders holding 60 to 70 per cent collectively after seed, once an option pool of around 10 per cent is in place. Below 50 per cent at seed is a warning sign, usually caused by raising too much too early, a heavily discounted convertible, or a pool created entirely in the pre-money.

Does the option pool dilute investors too?

It depends where it sits. A pool created in the pre-money dilutes only the existing shareholders, which means founders and earlier investors. A pool created post-money dilutes everyone, including the incoming round. Ask which the term sheet assumes, because the wording is often ambiguous and the difference is worth several percentage points.

Is dilution always bad for founders?

No. Owning 20 per cent of a company worth £50 million beats owning 80 per cent of one worth £2 million. Dilution is only a problem when the money raised does not buy proportionate progress, or when the terms mean you gave away more than the headline percentage suggested.

How does a SAFE or ASA affect my cap table?

Neither issues shares on signing, so they sit off the percentage table until they convert, usually at the next priced round. When they do convert, any discount or valuation cap means they buy more shares per pound than the new investors, and that extra comes out of the existing shareholders. Always model conversion before agreeing the next round’s terms.

What is the difference between pre-money and post-money?

Pre-money is what the company is agreed to be worth before the new investment lands. Post-money is pre-money plus the amount raised. The investors’ percentage is always the amount raised divided by the post-money figure, so a £1 million raise on a £4 million pre-money buys 20 per cent, not 25.

Can I avoid dilution by not raising?

Yes, and plenty of good UK companies do exactly that. Bootstrapping, revenue-based finance and grant funding all keep the cap table intact. The trade is speed and the size of the market you can attack before someone funded gets there. It is a strategic choice, not a moral one.