The equity dilution calculator above turns a term sheet into ownership percentages. Enter the pre-money valuation, the amount being raised, your current stake, and the size of any new option pool, and it shows the resulting split between you, other existing shareholders, the incoming investors, and the pool — plus the effective pre-money valuation once the pool is accounted for.
That last figure is the one this tool exists for. Arb Digital works with founders through growth stages where funding decisions and marketing budgets are set in the same meeting, and the pool shuffle is consistently the term that surprises people after the round has closed rather than before.
What This Equity Dilution Calculator Does
It calculates post-money valuation, the percentage the new investors receive, the percentage set aside for the option pool, and what is left for everyone who was on the cap table before. It then applies that remainder to your specific stake, so you see your ownership after the round rather than just the round-level split.
The dropdown controls the single term that changes the answer most: whether the new option pool is created before or after the investment. Created pre-money, it comes entirely out of the existing shareholders' side of the table. Created post-money, everyone including the new investors shares the cost. The calculator recomputes the whole split either way, and reports the effective pre-money valuation — what the pre-money figure really works out to once the pool is carved out of it.
How to Use It
- Enter the pre-money valuation. The value agreed for the business before the new money goes in.
- Enter the amount raised. Total new investment in this round, across all participating investors.
- Enter your current ownership. Your percentage of the fully diluted cap table today, not of common shares only.
- Set the new option pool. Expressed as a percentage of the post-money company. Enter zero if no new pool is created.
- Switch the pool dropdown between pre and post and compare the two results. The difference is what that one line in the term sheet costs.
The Formula / How It's Calculated
Post-money valuation is Pre-Money + Amount Raised. At an $8m pre-money and a $2m raise, post-money is $10m. Investor ownership is Amount Raised ÷ Post-Money, or 20%.
If the option pool is created post-money, every shareholder including the investor is diluted proportionally: existing holders retain (1 − 20%) × (1 − 10%) = 72% between them, investors hold 18%, and the pool is 10%. If the pool is created pre-money — the more common term — the investor's 20% is protected and the entire pool comes from the existing side: existing holders retain 100% − 20% − 10% = 70%, and investors keep the full 20%.
Your own stake is your prior percentage multiplied by whatever share of the company existing holders retain. At 60% before the round with a pre-money pool, that is 60% × 70% = 42%. Effective pre-money valuation is the pre-money figure minus the value of the pool: $8m − (10% × $10m) = $7m. You agreed an $8m valuation; the mechanics deliver $7m.
The Pool Shuffle, in Plain Numbers
The comparison is stark when you run it both ways. With a post-money pool, a founder starting at 60% ends at 43.2%. With a pre-money pool, the same founder ends at 42%. Just over a percentage point, which on a $10m post-money company is roughly $120,000 of value transferred by a single word in a term sheet — and the gap widens as the pool grows.
What makes this term easy to miss is that it never appears as a price negotiation. The headline valuation stays at $8m in both cases. The pool discussion is usually framed as a practical matter of having enough shares to hire, which it genuinely is, and the timing detail is buried in the mechanics rather than the headline terms. The number to compare across competing offers is therefore not the pre-money valuation but the effective pre-money valuation, which is why this calculator reports it.
Why a Larger Pool Is Not Automatically Worse
It would be a mistake to read this as "small pool good, large pool bad". A pool that is too small runs out during the hiring plan it was meant to fund, and topping it up mid-cycle means another dilution event, usually at a moment with less negotiating leverage than a live funding round. A pool sized to an actual hiring plan — specific roles, specific grant sizes, over a defined period — is a different conversation from a round-number pool set by convention.
The practical approach is to build the pool from the bottom up: list the hires planned before the next round, attach an expected grant to each, add a buffer for refresh grants to existing staff, and see what percentage that produces. If the resulting figure is well below the pool being proposed, that is a concrete basis for discussion. If it is above, you have learned something more important than a negotiating point.
Dilution Compounds Across Rounds
Single-round dilution is easy to accept. The compounding across three or four rounds is what founders underestimate. Each round multiplies the previous retained share: a founder at 60% who is diluted 30% in each of three successive rounds holds 60% × 0.7 × 0.7 × 0.7, or about 20.6%. No single round felt unreasonable; the sequence produced a very different outcome.
The counterweight is that percentages are not value. Holding 20% of a company worth $100m is worth considerably more than 60% of one worth $10m. The question is never dilution alone but whether each round's capital produced enough growth in company value to more than offset the ownership given up. That is a judgement call about the use of the money, not an arithmetic one — but the arithmetic at least makes the trade explicit. The U.S. Securities and Exchange Commission maintains a plain-language overview of capital raising for small businesses covering the regulatory side of these transactions.
What This Calculator Deliberately Ignores
Real cap tables carry structure that a percentage split does not capture. Liquidation preferences determine who gets paid first in a sale and how much before common shareholders see anything — a 1x non-participating preference and a 2x participating preference produce very different outcomes at the same ownership percentage. Convertible notes and SAFEs from earlier rounds convert into this round, often at a discount or a valuation cap, taking shares that this calculation does not know about. Anti-dilution provisions can adjust investor ownership retroactively if a later round prices lower.
Read the output here as the ownership arithmetic of a clean priced round. It is the correct starting point, and it is where most of the confusion lives, but a term sheet review needs a lawyer who works on these documents regularly. Tax treatment of options and equity compensation is a separate matter again, varies by country and by grant type, and in the United States is covered in part by IRS Publication 525.
Using Dilution Against Runway
The amount raised and the ownership given up are two sides of the same decision, and the bridge between them is how long the money lasts. Raising less preserves ownership but shortens runway, and a company that has to raise again sooner may do so from a weaker position. Raising more costs ownership now but buys time to reach a milestone that supports a higher valuation later.
Model it directly rather than by intuition: run the raise amount through the startup runway calculator at your current burn to see how many months each option buys, and use the burn rate calculator to check what the post-round hiring plan does to that figure. The business valuation calculator covers the other half — what the company would need to be worth at the next round for the extra dilution to have been worth taking.
Arb Digital builds the acquisition side of a post-funding plan: the website, the channels, and reporting that ties spend to revenue rather than activity.
Talk to Arb Digital Browse Free ToolsCommon Mistakes to Avoid
- Comparing offers on headline pre-money alone — effective pre-money after a pre-money option pool is the figure that reflects what you actually receive.
- Forgetting existing convertible notes and SAFEs — they convert in this round and take shares that a simple pre and post calculation never sees.
- Using common shares rather than the fully diluted count — dilution is always calculated on a fully diluted basis, including unissued pool shares.
- Sizing the pool by convention — a pool built from an actual hiring plan is both easier to defend and less likely to need topping up early.
- Treating percentage as value — ownership only matters multiplied by company value, and the two move in opposite directions in a successful round.
Related Free Tools From Arb Digital
Check what the raise buys with the startup runway calculator, size the company value on both sides of the round with the business valuation calculator, track cash consumption with the burn rate calculator, and cost the hiring plan behind the pool with the employee cost calculator. Browse the full free online tools hub for more.
Frequently Asked Questions
Divide the amount raised by the post-money valuation to get the investors' percentage. Everything left over is shared by the existing holders, so your new stake is your old percentage multiplied by that remaining share.
It is the practice of creating a new option pool out of the pre-money valuation, so existing shareholders absorb all of the dilution from it while the incoming investors' percentage is unaffected. The headline valuation looks unchanged, but the effective pre-money is lower by the value of the pool.
The pre-money valuation minus the value of any new option pool carved out of it. If an $8m pre-money round creates a 10% pool on a $10m post-money company, the effective pre-money is $7m.
Not necessarily. A pool too small to cover the hiring plan runs out and forces another dilution event later, often at a worse moment. Sizing the pool from a specific hiring plan is a more useful approach than treating a smaller pool as automatically better.
It depends entirely on how much is raised at what valuations, and it compounds. Being diluted 30% in each of three rounds leaves roughly a third of the original stake, because each round applies to what remained after the last.
No. It models a clean priced round. Notes and SAFEs convert into the round, often at a discount or valuation cap, and take additional shares that change the final split.
No. Liquidation preferences determine the order and amount of payouts, so preferred shareholders can receive a return before common shareholders participate at all. Percentage ownership alone does not describe the outcome.
Figures produced by this tool are planning estimates only and do not constitute financial, tax, legal, or investment advice. Actual outcomes depend on term-sheet provisions, existing instruments, and rules that vary by jurisdiction.
