The Founders Guide to Equity Dilution

Every time you raise money, you give up some ownership. Here is how to think about dilution strategically.

What Is Dilution?

Dilution is the reduction in your ownership percentage when new shares are created.

Example:

• You own 50% of 1M shares (500K shares)
• Company issues 500K new shares to investors
• You now own 33% of 1.5M shares (still 500K shares)
• Your percentage decreased but share count stayed same

Types of Dilution

Primary Dilution

From new shares issued to investors in funding rounds. This is normal and expected.

Option Pool Dilution

From shares reserved for employees. Usually created before rounds, diluting founders.

Anti-dilution Protection

Some investors get protection that increases their shares if you raise at lower valuation.

Typical Dilution by Round

Pre-seed

• 10-20% dilution
• Founder ownership after: 80-90%

Seed

• 15-25% dilution
• Founder ownership after: 60-75%

Series A

• 20-30% dilution
• Founder ownership after: 40-55%

Series B and Beyond

• 15-25% per round
• Founder ownership varies widely

The Option Pool Shuffle

Investors often require option pools created before rounds, meaning the dilution comes from founders.

Example:

• You own 80% before raising
• Investors want 20% of company
• They also want 15% option pool
• Your ownership: 80% x (1 - 0.20 - 0.15) = 52%

When Dilution Is Worth It

Dilution is good when:

• Capital helps grow the pie
• Investor adds real value
• You couldnt grow without it
• Terms are fair

Minimizing Dilution

Raise Less

• Bootstrap longer
• Reach more milestones first
• Raise only what you need

Negotiate Better

• Higher valuation
• Smaller option pools
• Better terms

Grow Faster

• More traction = higher valuations
• Revenue reduces dilution

The Psychology of Dilution

Remember:

• 20% of a $100M company beats 80% of a $10M company
• Focus on absolute value, not percentage
• Good investors help grow the pie

Use AngelBacked to find investors who will help you build value.