01 / UNDERSTAND THE CONCEPT
Dilution compounds from one round to the next.
Each financing dilutes the ownership that remains after the previous round. You cannot simply subtract every round’s investor percentage from your original ownership: those percentages refer to different share totals.
Modeling several rounds makes the cumulative effect visible. This can help founders understand how financing choices interact with employee equity and the ownership they may retain over time.
02 / THE MATHEMATICS
The formula, made clear.
Final ownership = starting ownership × (1 − round one dilution) × (1 − round two dilution)
- Starting ownership
- Fully diluted ownership before both modeled financings.
- Round dilution
- The proportion of post-round ownership allocated to new investors.
03 / A WORKED EXAMPLE
Put the numbers in context.
Starting with 80%, a 20% dilutive round leaves 64%. A second 20% dilutive round leaves 51.2%.
| Input | Example value |
|---|---|
| Starting ownership | 80% |
| Round one dilution | 20% |
| Round two dilution | 20% |
| Your final ownership | 51.2% |
MODEL BOUNDARIES
What this calculation assumes
Two sequential rounds. No founder purchases or sales, option pool changes or additional securities.
FROM UNDERSTANDING TO ACTION
What to consider next.
Consider adding anticipated employee equity dilution to your long-term ownership plan.
How we approach financial models →