Startup Equity & Dilution Calculator
Calculation Results:
Post-Money Valuation:
Pre-Money Share Price:
Post-Money Share Price:
Investor Ownership Percentage:
New Option Pool Shares:
Total Shares Post-Investment:
Founder's New Ownership Percentage:
Founder's Equity Value Post-Investment:
Calculation Results:
Please enter valid positive numbers for all fields. Option Pool Percentage must be less than 100.'; return; } var optionPoolPercentage = optionPoolPercentageInput / 100; // Convert to decimal // 1. Post-Money Valuation var postMoneyValuation = preMoneyValuation + newInvestmentAmount; // 2. Pre-Money Share Price var preMoneySharePrice = preMoneyValuation / existingShares; // 3. Shares for New Investment (Investor Shares) var investorShares = newInvestmentAmount / preMoneySharePrice; // 4. Total Shares Post-Investment (including new option pool) // TotalSharesPost = (ExistingShares + InvestorShares) / (1 – OptionPoolPercentage) var totalSharesPost = (existingShares + investorShares) / (1 – optionPoolPercentage); // 5. Shares for New Option Pool var newOptionPoolShares = totalSharesPost – (existingShares + investorShares); // 6. Post-Money Share Price var postMoneySharePrice = postMoneyValuation / totalSharesPost; // 7. Investor Ownership Percentage var investorOwnership = (investorShares / totalSharesPost) * 100; // 8. Founder's New Ownership Percentage var founderNewOwnership = (founderShares / totalSharesPost) * 100; // 9. Founder's Equity Value Post-Investment var founderEquityValue = (founderNewOwnership / 100) * postMoneyValuation; // Display Results document.getElementById('postMoneyValuationResult').innerText = '$' + postMoneyValuation.toLocaleString(undefined, { minimumFractionDigits: 2, maximumFractionDigits: 2 }); document.getElementById('preMoneySharePriceResult').innerText = '$' + preMoneySharePrice.toLocaleString(undefined, { minimumFractionDigits: 2, maximumFractionDigits: 2 }); document.getElementById('postMoneySharePriceResult').innerText = '$' + postMoneySharePrice.toLocaleString(undefined, { minimumFractionDigits: 2, maximumFractionDigits: 2 }); document.getElementById('investorOwnershipResult').innerText = investorOwnership.toLocaleString(undefined, { minimumFractionDigits: 2, maximumFractionDigits: 2 }) + '%'; document.getElementById('newOptionPoolSharesResult').innerText = Math.round(newOptionPoolShares).toLocaleString(); document.getElementById('totalSharesPostResult').innerText = Math.round(totalSharesPost).toLocaleString(); document.getElementById('founderNewOwnershipResult').innerText = founderNewOwnership.toLocaleString(undefined, { minimumFractionDigits: 2, maximumFractionDigits: 2 }) + '%'; document.getElementById('founderEquityValueResult').innerText = '$' + founderEquityValue.toLocaleString(undefined, { minimumFractionDigits: 2, maximumFractionDigits: 2 }); } // Calculate on page load with default values window.onload = calculateEquity;Understanding Startup Equity and Dilution
Startup equity is the ownership stake that founders, employees, and investors hold in a company. It's a fundamental concept in the startup world, representing a share of the company's future value. As a startup grows and raises capital, the equity structure often becomes more complex, leading to a process known as dilution.
What is Equity?
Equity refers to the percentage of ownership in a company. For founders, it's their initial stake. For employees, it often comes in the form of stock options or restricted stock units (RSUs) that vest over time. For investors, it's the ownership percentage they receive in exchange for their capital investment.
The Importance of Valuation
Valuation is the process of determining a company's worth. In startup funding rounds, two key valuations are discussed:
- Pre-Money Valuation: This is the value of the company *before* a new investment is made. It reflects the company's worth based on its current performance, market potential, and previous funding rounds.
- Post-Money Valuation: This is the value of the company *after* a new investment. It's simply the Pre-Money Valuation plus the New Investment Amount. This is the valuation at which new investors are buying into the company.
Understanding Dilution
Dilution occurs when a company issues new shares, which reduces the ownership percentage of existing shareholders. While it sounds negative, dilution is a natural and often necessary part of a startup's growth. It allows companies to raise capital, hire talent (via option pools), and expand operations. The goal is for the company's overall value to increase significantly, making a smaller percentage of a much larger pie more valuable than a larger percentage of a smaller pie.
The Role of the Employee Option Pool
An employee option pool is a block of shares reserved for future grants to employees, advisors, and consultants. It's crucial for attracting and retaining top talent. Often, a new option pool is created or topped up as part of a funding round, and its size is typically expressed as a percentage of the company's post-money fully diluted shares. This pool also contributes to dilution for existing shareholders.
How Our Calculator Works
This calculator helps you understand the impact of a new funding round on your startup's equity structure. Here's a breakdown of the inputs and outputs:
Inputs:
- Pre-Money Valuation ($): The company's valuation before the new investment.
- New Investment Amount ($): The amount of capital being invested in this round.
- Existing Fully Diluted Shares: The total number of shares outstanding before the new investment, including all common stock, preferred stock, and any existing unexercised options or warrants.
- Founder's Current Shares (before new investment): The number of shares currently held by a specific founder or existing shareholder.
- New Employee Option Pool (% of Post-Money): The percentage of the company's total shares (post-investment) that will be reserved for new employee options. This pool is typically "refreshed" or created as part of the funding round.
Outputs:
- Post-Money Valuation ($): The company's valuation after the new investment.
- Pre-Money Share Price ($): The price per share based on the pre-money valuation and existing shares.
- Post-Money Share Price ($): The price per share based on the post-money valuation and the new total shares (including investor shares and the new option pool).
- Investor Ownership Percentage (%): The percentage of the company owned by the new investor(s) after the round.
- New Option Pool Shares: The number of shares allocated to the new employee option pool.
- Total Shares Post-Investment: The total number of fully diluted shares outstanding after the investment and option pool creation.
- Founder's New Ownership Percentage (%): The founder's ownership percentage after the dilution from the new investment and option pool.
- Founder's Equity Value Post-Investment ($): The monetary value of the founder's remaining equity based on the post-money valuation.
Example Scenario:
Let's consider a startup with:
- Pre-Money Valuation: $5,000,000
- New Investment Amount: $1,000,000
- Existing Fully Diluted Shares: 10,000,000
- Founder's Current Shares: 5,000,000
- New Employee Option Pool: 10% of Post-Money
Using the calculator:
- Post-Money Valuation: $6,000,000
- Pre-Money Share Price: $0.50
- Post-Money Share Price: $0.45
- Investor Ownership Percentage: 15.00%
- New Option Pool Shares: 1,333,333
- Total Shares Post-Investment: 13,333,333
- Founder's New Ownership Percentage: 37.50%
- Founder's Equity Value Post-Investment: $2,250,000
This example shows how a $1M investment at a $5M pre-money valuation, combined with a 10% post-money option pool, dilutes the founder's ownership from 50% (5M/10M) to 37.50%, but increases the value of their stake from $2.5M (50% of $5M) to $2.25M (37.50% of $6M). Note that in this specific example, the founder's *value* decreased slightly, which can happen if the dilution is significant relative to the valuation increase, or if the option pool is large. However, the investment provides capital for growth, aiming for a much larger future pie.
Understanding these dynamics is crucial for founders, employees, and investors to make informed decisions about funding rounds and equity compensation.