Finance & Investment
Calculate Equity Dilution After a Funding Round
Calculate ownership before and after new shares are issued, distinguish percentage-point change from relative dilution, and check a funding example.
Use a share-ownership model
Equity dilution occurs when an owner's proportion of a company's shares decreases because the relevant total share count increases without an equivalent increase in that owner's holdings. This is a capital-table calculation, not a chemical concentration problem. The site's Dilution Calculator uses solution concentrations and volumes and cannot model equity. For a simple single-class example, ownership percentage equals shares owned divided by total shares outstanding, multiplied by 100. Define the denominator first, including whether the question uses currently issued shares or a specified fully diluted basis.
Calculate ownership before and after issuance
Suppose an owner holds 200,000 shares out of 1,000,000 shares outstanding. The initial ownership is 20%. If the company issues 250,000 new shares to another investor and the owner buys none, the new total is 1,250,000. The owner's new percentage is 200,000/1,250,000×100=16%. The owner still has 200,000 shares; it is the denominator that changed. Use the Ratio Calculator to compare 200,000 with 1,250,000. The simplified ratio is 4:25, whose decimal value is 0.16, corresponding to 16%.
Distinguish percentage points from relative dilution
The ownership change from 20% to 16% is a reduction of four percentage points. Relative to the original 20%, the reduction is (20−16)/20=20%. Calling this simply a 4% reduction is ambiguous and can be misleading. For an existing owner who does not participate in a simple issuance, the retained proportion of their old percentage is old total shares divided by new total shares. Here that is 1,000,000/1,250,000=80%, so the relative dilution is 20%. Report both the before-and-after ownership and the intended change measure.
Connect a priced round to new shares
Assume a simple pre-money equity valuation of 4,000,000 and 1,000,000 relevant pre-round shares. The implied price is 4 per share. A new investment of 1,000,000 at that price buys 250,000 shares, creating the 1,250,000-share total above. Under this simplified model, post-money value is 5,000,000 and the new investor owns 20%. These assumptions exclude option-pool changes, convertible instruments, fees and special rights. State the valuation basis and share count explicitly because a price-per-share calculation based on a different denominator can produce a different issuance amount.
Separate percentage ownership from monetary value
In the example, the original owner's 200,000 shares have an implied value of 800,000 at the round's 4-per-share price both before and immediately after the simple issuance. Their percentage falls from 20% to 16%, while 16% of the 5,000,000 post-money figure is also 800,000. This does not prove that market value is preserved in every transaction. It demonstrates why percentage dilution alone does not describe all economic effects. A different issue price, rights structure or change in company value can alter the outcome substantially.
Account for additional instruments explicitly
Options, warrants and convertible securities can change the relevant future share count. Their treatment depends on the instrument and the chosen fully diluted definition. Do not insert a guessed number of future shares merely to make a table add to a desired percentage. Create separate rows for issued shares and each potential source of additional shares, with the applicable conversion or exercise assumption. A calculation using only currently outstanding shares can be correct for that basis while differing from a fully diluted presentation. Name the basis so the two figures are not presented as interchangeable.
Reconcile the complete capital table
After adding the issuance, calculate every holder's percentage using the same new denominator and check that the displayed totals sum to approximately 100%, allowing for rounding. In the example, all pre-round holders together retain 80% and the new investor has 20%. Retain exact share counts even if percentages are rounded for display. The Ratio Calculator checks a pair of numbers, not corporate documents, instrument terms or voting rights. Use the actual transaction documents for those facts, then use the arithmetic to make the stated ownership assumptions transparent and reproducible.
Use the Ratio Calculator
Source and scope
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