Standard fully diluted share count formula
The percentage dilution suffered by existing shareholders in a round equals the number of new shares issued divided by the total post-round share count. If a company has 8,000,000 shares before a round and issues 2,000,000 new shares to an investor, the post-round total is 10,000,000, and existing shareholders are diluted by 2,000,000 divided by 10,000,000, which is 20%, the same core calculation used throughout equity dilution.
Always calculate on a fully diluted basis, meaning you include all outstanding options, warrants, and any instruments that convert into shares, such as SAFEs or convertible loan notes. Leaving these out understates the real share count and overstates everyone's percentage ownership, which is why a full cap table should always be requested before agreeing terms.
Dilution impact of investors and pools
| Component | Shares |
|---|---|
| Existing founder and employee shares | 8,000,000 |
| New option pool shares (pre-money top-up) | 1,000,000 |
| New investor shares | 2,250,000 |
| Post-round fully diluted total | 11,250,000 |
In this example, existing shareholders' combined percentage falls from 100% to 8,000,000 divided by 11,250,000, which is about 71.1%. The pool and the investor together account for the remaining 28.9%, split as roughly 8.9% pool and 20.0% investor, the exact mechanic covered on the pool dilution page.
Verification steps for fully diluted calculations
- Always request the fully diluted cap table, not just issued shares, before agreeing to a round.
- Confirm whether convertible notes or SAFEs from earlier rounds convert into shares at this round, since that adds to dilution.
- Ask whether the option pool top-up is counted as pre-money or post-money, since this changes who bears the dilution.
- Recalculate your own percentage independently rather than relying solely on a term sheet summary.
Questions on the share count math
- What does fully diluted mean?
- It means the share count as if every outstanding option, warrant and convertible instrument had already converted into shares, giving the most complete picture of ownership.
- Do convertible notes cause dilution before they convert?
- They do not dilute issued share percentages until they convert, but a fully diluted calculation should still account for their expected conversion.
- How precise do dilution calculations need to be?
- Very precise for legal and financial documents, since small errors in share counts compound across multiple rounds.
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.