Model equity dilution across funding rounds with pre/post-money valuation, option pool expansion, and founder ownership tracking.
Funding rounds shrink earlier stakes even when no holder sells a share. Enter the starting ownership and, for each priced round, its pre-money valuation, new investment, and any option-pool increase. The model derives post-money valuation, allocates the new investor's stake, and carries the reduced founder percentage into later rounds. The common surprise is compounding: a second 20% financing does not take founders from 80% to 60%; it leaves them with 64%, because the later round dilutes every pre-existing holder.
A concrete input and expected output from the current implementation.
Input
Initial capitalization: founders 100%, option pool 0% Round 1: pre-money $8,000,000; investment $2,000,000; pool expansion 0% Round 2: pre-money $12,000,000; investment $3,000,000; pool expansion 0%
Expected output
Round 1 post-money valuation: $10,000,000. After Round 1: founders 80%, Round 1 investor 20%. Round 2 post-money valuation: $15,000,000. Final ownership: founders 64%, Round 1 investor 16%, Round 2 investor 20%.
Each investor purchases 20% because investment is one-fifth of that round's post-money valuation. In Round 2, both existing stakes retain 80% of their prior percentages: founders become 80% x 80% = 64%, and the first investor becomes 20% x 80% = 16%.
A priced round starts with pre-money valuation and new investment. Post-money valuation is their sum. With no pool change, the incoming investor's percentage is investment divided by post-money valuation. Every existing holder retains the complementary percentage, in proportion to the holder's pre-round stake. The resulting cap table becomes the starting point for the next round.
An option-pool expansion increases the equity reserved for grants and reduces the percentages held by other stakeholders. Its effect depends on whether the target pool is measured before or after the financing and whether the stated target means the total pool or an additional amount. Match those definitions to the deal terms, then review the recalculated founder percentage round by round.
Ownership dilution is multiplicative. After the first 20% sale, founders retain 80%. The second investor takes 20% of the new post-money company, so all prior holders retain 80% of what they had. Founders therefore keep 80% x 80% = 64%; the first investor falls from 20% to 16%.
For the same investment and with every other assumption unchanged, yes: investment divided by post-money valuation is smaller. In an actual term sheet, however, a required pre-money option-pool increase can dilute existing holders before the investment and offset part of that benefit. Compare the full post-round cap table, not valuation alone.
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