Cumulative effect of multi-round funding paths
Dilution in one round is applied to the ownership percentages resulting from the previous round, not to the original founding percentages. If founders hold 70% after a seed round and a Series A round dilutes everyone by a further 20%, founders end up with 70% multiplied by 80%, which is 56%, not 50%, the compounding effect tracked across the founder dilution path and reflected in the underlying cap table.
| Round | Dilution applied | Founders' % after round |
|---|---|---|
| Seed | 30% (investor + pool) | 70.0% |
| Series A | 20% | 56.0% |
| Series B | 15% | 47.6% |
| Series C | 10% | 42.8% |
Projecting ownership outcomes for future funding
To model future dilution, estimate the likely size and structure of each upcoming round, including any expected pool top-ups, and apply each round's dilution multiplicatively to the prior ownership percentage, as shown above. This is more accurate than simply adding dilution percentages together, which understates the compounding effect over several rounds relative to the simpler single-round math used in equity dilution.
Best practices for tracking multi round dilution
- Keep a live cap table that updates automatically as new rounds and grants are modelled.
- Model a range of scenarios, not just the current term sheet, since future rounds are uncertain.
- Separate the effect of pool top-ups from investor dilution in each round to spot where the biggest impact comes from.
- Revisit the model whenever a real round is being negotiated, using actual terms rather than assumptions.
Questions on projecting dilution ahead
- Should I add dilution percentages across rounds or multiply them?
- Multiply the retained percentage at each round rather than adding dilution percentages together, since dilution compounds on the prior ownership base.
- How many rounds should I model ahead?
- Modelling two to three rounds ahead is usually enough to understand realistic long term dilution without relying on too many speculative assumptions.
- Does dilution after funding affect vested and unvested shares differently?
- No, dilution reduces the percentage represented by any shares equally, whether vested or unvested; vesting only affects whether you keep the shares at all if you leave.
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.