How to Model Dilution Across Several Rounds

One round of dilution is easy to picture. Three or four rounds stacked on top of each other, each with an option pool top-up and maybe a SAFE conversion, is where founders get surprised. This guide shows you how to model dilution across several rounds with one simple formula and a spreadsheet you can build in an afternoon, so you can raise with a clear view of where your ownership is heading.

Most founders know their ownership today from the cap table. Fewer know what it is likely to be after their Series A or B, and that number shapes big decisions: how much to raise now, how large an option pool to create and whether a higher valuation is worth slower progress. A multi-round model turns those decisions from guesses into choices.

A quick note: this article is general information, not legal, tax or investment advice. Real financings involve many details a simple model leaves out, so check your figures with your lawyer, accountant or a qualified adviser before you rely on them.

The one formula behind multi-round dilution

Every new round issues new shares. Existing holders keep the same number of shares, but those shares now represent a smaller slice of a bigger pie. The math is surprisingly simple.

Your ownership after a round = your ownership before the round multiplied by (1 minus the percentage of the company issued in that round).

"Percentage issued" means everything new that appears on the fully diluted cap table in that round, measured after the round closes. That usually includes:

• New investor shares, the stake the new money buys.
• Option pool top-up, new options investors often ask you to add before or during the round.
• Converted SAFEs and notes, earlier instruments that turn into shares at the priced round.

Because each round multiplies the previous result, dilution compounds. Two rounds that each issue a quarter of the company do not take half your ownership. They leave you with three quarters of three quarters, a little over 56% of what you started with.

The inputs you need for each round

Before you open a spreadsheet, gather these numbers for every round you want to model. Use your best estimates and label them clearly as assumptions.

Round size and valuation

The new investors' stake equals the amount raised divided by the post-money valuation. If you do not know either yet, you can model the stake directly as a percentage, which is often easier for planning.

Option pool top-up

Investors commonly ask for the option pool to be refreshed so the company can hire after the round. When the top-up is counted in the pre-money valuation, existing holders bear its full cost. Model it as a separate percentage of the post-round company so you can see its effect clearly.

SAFEs and convertible notes

SAFEs and convertible notes convert into shares at the next priced round, usually at a discount or a valuation cap. Convertible equity such as a SAFE has no interest or maturity date, while convertible debt accrues interest and has a maturity date, so a note can convert into slightly more shares than its face amount suggests. If you have several outstanding instruments, estimate their combined conversion as a percentage of the post-round company.

Pro rata participation

Existing investors with pro rata rights may buy into later rounds to maintain their stake. This does not change the total new issuance, but it changes who ends up holding it, which matters if you model each investor separately.

Build the model step by step

1. Start from today's fully diluted cap table. List founders, existing investors, issued options and the unissued pool as percentages that add up to 100%.
2. Add one column per future round. Seed, Series A, Series B, or whatever fits your plan.
3. Enter the round inputs. New investor percentage, pool top-up percentage and conversions, each as a share of the post-round company.
4. Calculate the kept share. One minus the total issued in that round.
5. Multiply existing holders. Every existing line, including the old pool, gets multiplied by the kept share.
6. Add the new lines. New investors, the pool top-up and converted instruments appear with their round percentages.
7. Check the total. Each column should add up to 100%. If it does not, a formula is wrong.
8. Copy the sheet for scenarios. Build a base case, a tougher case and a stronger case.

A worked dilution template

Here is a three-round model in percentages. Every figure is a made-up example for illustration only, not a typical or recommended outcome. Start by assuming founders hold 90% and the option pool holds 10% before the seed round.

Follow the founders' line to see the formula at work: 90% times 0.75 is 67.5%, times 0.75 is about 50.6%, times 0.82 is about 41.5%. Each column adds up to 100%, with small differences due to rounding.

Scenarios that change the picture

A single forecast gives false comfort. Build at least three versions and compare them side by side.

• Base case. Rounds of the size and timing you plan today.
• Extra round. Add a bridge round between priced rounds. Bridges are often structured as SAFEs or convertible notes, and their conversion adds another layer of dilution.
• Down round. A lower valuation means new investors take a bigger stake for the same money. Ask your lawyer how any anti-dilution protection in your charter would affect existing preferred holders, and therefore everyone else.
• Bigger pool. Model a larger top-up in case your hiring plan grows.
• Non-dilutive alternatives. Compare with revenue-based financing, which is repaid as a share of monthly revenue until a set total is reached, or venture debt, which is usually available to venture-backed startups and often comes with warrants. Warrants are small, but they still belong in the model.

Ownership versus value

A smaller slice of a much larger company can be worth far more than a big slice of a small one. Add a row that multiplies each holder's percentage by a few made-up exit values. Then remember that preferred investors usually hold liquidation preferences, so in a modest sale they may be paid before common holders. For a fuller picture, ask your lawyer or adviser to build a waterfall that applies the actual preference terms.

Using the model in your next raise

Late summer is a good time to build or refresh your model if you plan to raise in the fall. Once it is ready, use it in three practical ways.

• Set your raise amount. Compare what different round sizes do to ownership and runway together, rather than chasing the largest possible check.
• Negotiate the option pool. Tie the top-up to a specific hiring plan for the next 18 to 24 months instead of accepting a round number.
• Explain equity to your team. Employees with options also get diluted. A simple view of how the pool and their grants change helps you answer questions honestly.

Store the final model with your cap table and financing documents in your data room, and keep a dated copy for each round so you can compare plans with what actually happened.

Frequently asked questions

The bottom line

Multi-round dilution follows one simple rule: multiply your ownership by the share existing holders keep in each round. Add the investor stake, the pool top-up and any conversions for every round, check that each column adds up, and build a few scenarios rather than a single hopeful forecast.

An afternoon with a spreadsheet gives you a clear view of where your ownership is heading and a stronger position in every negotiation. Review it with a qualified adviser, keep it updated, and raise knowing exactly what each round costs.