Initial two founder ownership structure
| Holder | Shares | % Fully diluted |
|---|---|---|
| Founder A | 500,000 | 62.5% |
| Founder B | 300,000 | 37.5% |
| Total | 800,000 | 100.0% |
Before the round, there is no option pool and no outside investor. The two founders hold all 800,000 shares between them, the simplest possible starting point before a cap table template needs multiple rows.
Specific parameters for a seed funding simulation
- Investor invests 1,000,000 for 20% of the company fully diluted, post-money
- The board agrees to expand the option pool to 15% fully diluted, created before the investment closes
- Founders' shares are not repurchased; their percentage simply falls as new shares are issued
Post-money share allocation including pool
To reach a fully diluted total where the investor holds 20% and the pool holds 15%, the founders' combined 800,000 shares must represent the remaining 65%. That sets the new fully diluted total at 800,000 divided by 65%, which is approximately 1,230,769 shares, the kind of arithmetic that comes up in most fundraising rounds.
| Holder | Shares (approx.) | % Fully diluted |
|---|---|---|
| Founder A | 500,000 | 40.6% |
| Founder B | 300,000 | 24.4% |
| Option pool (unallocated) | 184,615 | 15.0% |
| New Investor | 246,154 | 20.0% |
| Total | 1,230,769 | 100.0% |
Notice founders' share counts did not change, only their percentage. All of the dilution from the new pool and the investor came out of the founders' combined percentage, dropping from 100% to 65%, because the pool was created pre-money.
Verifying pre money and post money results
Post-money valuation equals investment divided by percentage acquired: 1,000,000 divided by 20% equals 5,000,000 post-money. Pre-money valuation is post-money minus the new investment: 5,000,000 minus 1,000,000 equals 4,000,000, which matches the stated round terms.
Working through the example again
- Why did the founders' share count stay the same but their percentage drop?
- Dilution happens because new shares are issued to the pool and the investor, increasing the total share count. The founders still own the same number of shares, just a smaller slice of a bigger total.
- What if the option pool had been created after the investment instead of before?
- The investor's 20% would then also be diluted by the new pool shares, so the investor would typically end up owning slightly less than 20% after the pool top-up, unless the round terms were renegotiated.
General information for founders, not legal or tax advice. Thresholds and rates change, so confirm the current position with an adviser in the relevant country before granting.