Startup Equity Dilution, Explained With Real Numbers
Pre-money, post-money, ESOP, and exactly how much of your company you give up in a round — with a worked example every founder should run before signing.
Dilution is the price of capital. Every round you raise, your slice of the pie gets smaller — the goal is to make the pie grow faster than your slice shrinks. To negotiate well, you need to know exactly how the maths works.
Pre-money vs post-money
- •Pre-money — what the company is worth *before* the new investment.
- •Post-money — pre-money plus the amount raised. The investor's ownership is calculated on this.
A worked example
Say you raise ₹2 Cr on an ₹8 Cr pre-money valuation:
- •Post-money = ₹8 Cr + ₹2 Cr = ₹10 Cr.
- •Investor takes ₹2 Cr ÷ ₹10 Cr = 20%.
- •If you also create a new 10% ESOP pool, that is another 10%.
- •You and your co-founders, who held 100%, now hold 100% × (100% − 20% − 10%) = 70%.
So a "20% round" actually diluted you by 30 points once the option pool is in. That is the part founders miss.
The ESOP timing trick
Where the option pool is created matters enormously. A pre-money pool dilutes only existing shareholders (you). A post-money pool spreads across everyone, including the new investor. Investors usually push for pre-money; that single negotiation point can cost you several percent.
Run your own numbers with the free dilution calculator before you sit down for the term-sheet conversation.
How much dilution is normal?
As a rough guide, founders give up 15–25% in a seed round and 15–20% in a Series A. If a round dilutes you more than ~25%, either you are raising too much for the stage or the valuation is low — both are worth a hard conversation.
Runway tracks your cap table across rounds, models SAFEs and ESOP, and shows founder ownership over time, so you walk into every raise knowing exactly where you stand.
Frequently asked
How much equity do you give up in a seed round?
Most seed rounds dilute founders by 15–25%, depending on how much you raise relative to the post-money valuation, plus any new ESOP pool created in the round.