Equity Calculator Startup

Startup Equity Calculator

Calculation Results

Enter values and click 'Calculate Equity' to see the results.

function calculateEquity() { var preMoneyValuation = parseFloat(document.getElementById("preMoneyValuation").value); var investmentAmount = parseFloat(document.getElementById("investmentAmount").value); var optionPoolPercentage = parseFloat(document.getElementById("optionPoolPercentage").value); var resultDiv = document.getElementById("result"); if (isNaN(preMoneyValuation) || isNaN(investmentAmount) || isNaN(optionPoolPercentage) || preMoneyValuation <= 0 || investmentAmount < 0 || optionPoolPercentage = 100) { resultDiv.innerHTML = "Please enter valid positive numbers for Pre-Money Valuation and Investment Amount, and a valid percentage (0-99) for Option Pool."; return; } var postMoneyValuation = preMoneyValuation + investmentAmount; // Calculate equity percentages before considering the option pool var investorEquityBeforeOptionPool = (investmentAmount / postMoneyValuation) * 100; var founderEquityBeforeOptionPool = (preMoneyValuation / postMoneyValuation) * 100; // Apply the option pool dilution. The option pool is typically a percentage of the post-money fully diluted company. // This means the investor and founders will collectively own (100 – optionPoolPercentage)% of the company. var scalingFactor = (100 – optionPoolPercentage) / 100; var finalInvestorEquity = investorEquityBeforeOptionPool * scalingFactor; var finalFounderEquity = founderEquityBeforeOptionPool * scalingFactor; var finalOptionPoolEquity = optionPoolPercentage; // The target option pool percentage resultDiv.innerHTML = "Post-Money Valuation: $" + postMoneyValuation.toLocaleString('en-US', { minimumFractionDigits: 0, maximumFractionDigits: 0 }) + "" + "Investor's Equity Share: " + finalInvestorEquity.toFixed(2) + "%" + "Founder's Equity Share (Post-Investment & Option Pool): " + finalFounderEquity.toFixed(2) + "%" + "Option Pool Share: " + finalOptionPoolEquity.toFixed(2) + "%"; }

Understanding Startup Equity and Dilution

Startup equity is the ownership stake individuals or entities hold in a company. For founders, it represents their share of the business they've built. For investors, it's their return for providing capital. For employees, it's an incentive to contribute to the company's growth. Understanding how equity is distributed and how it changes over time is crucial for every startup.

What is Startup Equity?

At its core, equity is a piece of the company. When a startup is founded, founders typically own 100% of the company's equity. As the company grows and seeks external funding, or hires key employees, this equity gets distributed, leading to what's known as "dilution."

Key Terms Explained

  • Pre-Money Valuation: This is the valuation of your company before any new investment is made. It's essentially what your company is deemed to be worth right now.
  • New Investment Amount: The capital injected into the company by an investor (e.g., angel investor, venture capitalist) in exchange for equity.
  • Post-Money Valuation: This is the valuation of your company after the new investment. It's calculated as Pre-Money Valuation + New Investment Amount.
  • Option Pool: A percentage of the company's equity reserved for future employees, advisors, or consultants. This pool is created to attract and retain talent by offering them stock options or restricted stock units. Creating an option pool typically dilutes existing shareholders (founders and sometimes early investors) before a new investment round.
  • Dilution: The reduction in the ownership percentage of existing shareholders (like founders) when new shares are issued to new investors or for an option pool. While the percentage of ownership decreases, the overall value of the company (and thus the value of their smaller percentage) ideally increases.

How the Calculator Works

Our Startup Equity Calculator helps you understand the immediate impact of a new investment round and the creation of an option pool on your company's ownership structure. Here's how it uses the inputs:

  1. Pre-Money Valuation: You input your company's current valuation before any new money comes in.
  2. New Investment Amount: You specify how much capital a new investor is putting into the company.
  3. Target Option Pool Percentage: You define the percentage of the company's post-money fully diluted equity that you want to set aside for future hires.

Based on these figures, the calculator determines:

  • Post-Money Valuation: The new total value of your company after the investment.
  • Investor's Equity Share: The percentage of the company the new investor will own.
  • Founder's Equity Share: Your (and other existing shareholders') combined ownership percentage after both the new investment and the creation of the option pool.
  • Option Pool Share: The percentage of the company allocated to the option pool.

Example Scenario

Let's say your startup has a Pre-Money Valuation of $5,000,000. You're raising a New Investment of $1,000,000, and you plan to create a 15% Option Pool for future employees.

  • Post-Money Valuation: $5,000,000 (Pre-Money) + $1,000,000 (Investment) = $6,000,000
  • Investor's Equity Share: The investor puts in $1M into a $6M post-money company. This is 16.67% before the option pool. After the 15% option pool dilutes everyone, the investor's share becomes approximately 14.17%.
  • Founder's Equity Share: Before the option pool, founders own $5M of the $6M post-money company, which is 83.33%. After the 15% option pool, the founders' share becomes approximately 70.83%.
  • Option Pool Share: This remains the target 15%.

Notice how the founders' percentage decreases. This is dilution. However, their smaller percentage is now of a larger, more valuable company, and the investment provides capital for growth.

Important Considerations

While this calculator provides a clear snapshot, real-world equity structures can be more complex:

  • Vesting Schedules: Founder and employee equity is often subject to vesting, meaning it's earned over time (e.g., 4 years with a 1-year cliff). This calculator doesn't account for vesting.
  • Multiple Funding Rounds: Each new funding round will further dilute existing shareholders.
  • Convertible Notes & SAFEs: Early-stage funding often comes through convertible notes or SAFEs (Simple Agreement for Future Equity), which convert into equity at a later funding round, often with discounts or valuation caps that affect dilution.
  • Preferred vs. Common Stock: Investors often receive preferred stock with special rights (e.g., liquidation preferences) that common stock (typically held by founders and employees) does not have.

This calculator is a powerful tool for initial planning and understanding the basics of startup equity. Always consult with legal and financial professionals for specific advice regarding your startup's capitalization table and funding rounds.

Leave a Reply

Your email address will not be published. Required fields are marked *