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Editor's Note:-What will happen to our current equity structure if we raise this funding?” “How much equity will the new investors get after this round?” If these questions are on your mind, you're not alone. Use our equity dilution calculator to stop the guesswork. Just put in the numbers and get clear answers instantly.
Raising funds for your startup? Guessing how to calculate share dilution?
Well, use our equity calculator and put an end to the guesswork!
This startup equity dilution calculator tool shows how much a founder's equity is diluted when they take on new capital or/round.
You have a grand vision and an idea for a company but are waiting for the right fuel for your business, for which you are in talk with investors. You need to figure out the right balance between shares issued and equity diluted to ensure your stake in ownership. Understanding the numbers is key to maintaining control and setting your venture on the path to success.
Equity dilution in start-ups refers to the decrease in ownership percentage experienced by existing shareholders when new shares are issued. This typically happens during funding rounds, where investors receive shares in exchange for their investment.
It’s like giving a small piece of your pie in exchange for some dough, you can make more pie with the dough and the investors get the pie.
Let's walk through an example to understand it better:
Imagine a start-up with:
The company decides to raise $1 million in a seed funding round: Investors invest $1 million in exchange for 20,000 new shares.
There are many ways to calculate equity dilution based on the input parameters provided. Let’s discuss one of the ways (which was used in the calculator above too). We’ll touch up upon another way at the end. Before we go into the calculations here are three golden numbers needed:
Other calculations can be extrapolated from these golden numbers.
The number of shares to be issued is calculated based on how much ownership you want to retain, and the change in ownership can be calculated based on the total shares post money and pre-money. Let’s dive into the calculations.
Once you input these three data points, you can see the output in the form of:
| Output | Definition | Formula for calculation |
| Number of Shares to be Issued | Number of new shares to be issued for the investor/partner to get the investment | (Target Ownership / (1 - Target Ownership)) * Current Shares Outstanding |
| Total shares after funding | Total shares after transaction is completed | Outstanding shares + New shares issued |
| Pre-money valuation | Valuation of the company before completing the funding round | Number of shares issued pre-money x price of issued shares |
| Post-money valuation | Valuation of the company after completing the funding round | Pre-money valuation + Funding received |
This calculator can help you identify the pre and post money valuations and the final shares after the funding round.
Understanding all these values is especially vital for startups and founders for their strategic decision-making to ensure that their ownership lies within the threshold they want and they aren’t losing their key rights. Some other factors include:
Overall, a deep understanding of these financial metrics is vital for effective corporate governance, investor relations, and long-term business success.
This calculator takes into consideration some key parameters like target ownership and capital, but in reality, with a greater number of investors, it gets more complicated to maintain them. Therefore, it makes it more essential to have a working, real-time Capitalization table or a Cap table to ensure visibility and transparency at all times.
Still, if you looking for some of the other parameters to maintain in your spreadsheets, then those include:
Get the overview of the Cap Table and the changes done after each round with ease. View your equity shares by ownership, shares, securities, series, and more.
Reach out to us for a free consultation today!
Equity dilution occurs when a startup issues new shares. This reduces the ownership percentages of existing shareholders. Here, using an equity dilution calculator helps founders estimate how much of their stake will decrease and plan accordingly.
To use a startup equity dilution calculator, you need to feed in your current number of shares, the capital that you aim to raise, and your desired ownership after the funding round. The calculator will give you accurate ownership percentages within seconds.
To calculate share dilution manually, first note the existing number of shares. Add the new share number to this to get the total and then divide your shares by this new total. You will arrive at your updated ownership percentage.
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