The moment fundraising begins, equity dilution becomes a key concern—but many founders overlook its impact until it’s too late. The Equity Dilution Planning tool helps you understand how much ownership you're giving up and what it means for the future. It turns equity into a strategic decision, allowing you to plan ahead, protect your stake, and scale without losing control.
Learning Materials
What is Equity Dilution?
To understand equity dilution, imagine a pie that represents 100 percent of your startup. At the beginning, you and your co-founders split that pie entirely. But as your company grows and you issue new shares—whether to raise funding, grant stock options or bring on advisors—that pie gets sliced into more pieces.
Equity dilution happens when new shares are created. The total size of the pie grows, but your slice stays the same size. As a result, your percentage of ownership goes down. This might sound alarming at first, but it’s not necessarily negative. Dilution is a standard part of building a high-growth company. In fact, giving up a portion of equity to bring in capital or expertise can be the very thing that allows your startup to grow faster and increase its overall value.
The challenge isn’t avoiding dilution. It’s understanding how to manage it. If you fail to prepare, you could unintentionally reduce a co-founder’s stake, leave employees under-compensated, or trigger misalignment with future investors. That’s why planning ahead isn’t just wise—it’s essential.
One of the best practices founders can follow is to have transparent conversations about equity early. Misunderstandings tend to multiply later. A realistic dilution plan creates clarity today and prevents tension tomorrow.
What is a Dilution Calculator?
A dilution calculator is a tool that helps founders understand exactly how ownership changes when new shares are issued. Instead of guessing what might happen after a funding round or option pool expansion, you can simulate the effects before making any decisions.
The way it works is simple in concept. You enter your current cap table—who owns what—and then add potential changes, such as new investors, stock grants, or convertible notes. The calculator then tells you what each stakeholder’s new ownership percentage would be after those changes. It also shows how many diluted shares will exist after new issuance.
This is particularly important because startup equity decisions are rarely made in isolation. Every new hire affects your option pool. Every funding round alters your cap table. Without a calculator, it’s easy to underestimate the long-term impact of what feels like a short-term choice.
Founders often assume they can fix dilution later, but these decisions tend to compound over time. What feels like one or two percentage points lost can eventually result in a significant shift in control, voting rights, or investor dynamics. A calculator doesn’t just protect you from surprises. It gives you the information you need to negotiate confidently and plan with precision.
Common Mistakes Founders Make with Equity Dilution
Many founders approach equity dilution with vague expectations or outdated assumptions. As a result, they fall into patterns that damage long-term alignment or even threaten future funding. Here are a few of the most common mistakes—and how to avoid them.
Treating dilution as something to fix later
It’s tempting to avoid hard conversations early, especially when the team is focused on building. But waiting too long to model future dilution leads to surprises. Smart founders use dilution planning as a way to lead with transparency, not react defensively later.
Offering non dilutable equity too easily
Non dilutable equity might sound appealing to early investors or advisors, but it often creates problems later. These arrangements protect a percentage of ownership at the expense of everyone else. What seems generous at the start can become unworkable as the company grows.
Confusing diluted earnings per share with ownership dilution
These terms sound similar, but they serve different purposes. Diluted earnings per share is a financial accounting metric used in public companies. Ownership dilution refers to how equity percentages shift after new shares are issued. They are not interchangeable.
Forgetting to plan for hiring
You will almost always hire more people than you expect. If you don’t reserve enough equity for future team members, your cap table will come under pressure. That leads to renegotiations or last-minute dilution that could have been avoided.
Misalignment between co-founders
Even small differences in expectations can become large points of friction later. Founders who align early on dilution scenarios build stronger partnerships and make better decisions together.
The Equity Dilution Planning tool supports that alignment by providing a shared model.
Avoiding these mistakes is not about being perfect. It’s about staying aware, asking better questions, and being willing to run the numbers before the decisions are locked in.
Benefits of the Future Equity Dilution Planning Tool
Founders often describe dilution as one of the most confusing parts of startup finance. And it’s no wonder—between multiple share classes, different types of investors, and shifting option pools, it’s easy to get lost. The Future Equity Dilution Planning tool is designed to bring structure to that complexity.
Here’s what the tool helps you do:
Model fundraising scenarios before they happen
By applying the correct dilution formula, the tool lets you simulate how ownership would shift if you raised a certain amount at a given valuation. You can compare multiple scenarios side by side and see the full impact on your cap table.
Understand how ownership evolves over time
Instead of focusing only on your current round, the tool helps you plan across several future rounds. That long-term visibility allows you to protect both founder equity and employee incentives over time.
Incorporate employee and advisor equity planning
Dilution in business isn’t just about investors. It includes your team and your extended contributors. The tool lets you reserve and model stock options, advisory grants, and board compensation without disrupting the entire cap table.
Keep your legal agreements aligned
When you model your dilution early, legal negotiations go more smoothly. You enter term sheet conversations with clarity—not with vague percentages that fall apart under scrutiny.
Strengthen transparency with your stakeholders
Whether it’s a co-founder, investor, or senior hire, having a structured dilution plan builds trust. You show that you’re managing the company like a leader—by anticipating complexity, not avoiding it.
Used consistently, this tool becomes more than a calculator. It becomes a framework for better decision-making, stronger alignment, and responsible growth.