Dilution through rounds
Dilution is multiplicative, not subtractive. The reflex that separates cap-table-literate founders from the rest.
What it is
When the company raises a new round, your ownership percentage shrinks. Your share count stays the same; the pie grows. To compute your new % after a round, multiply your old % by (pre ÷ post).
Chain rounds by multiplying the factors together. Each round contributes one factor; all the factors multiply.
Why investors care
Spanish VCs listen for whether you do cap-table math correctly in your head during a meeting. The classic founder error is subtractive thinking — "I have 60%, they take 20%, so I'll have 40%."
The correct mental model is multiplicative. Investors see this immediately, and it shapes whether they think you're cap-table literate.
The formula
= Old % × (1 − Investor's %)
After 3 rounds:
Final % = Old % × f₁ × f₂ × f₃
where fₙ = preₙ ÷ postₙ
Worked example
Start at 70%. Three rounds close in sequence:
70% × 0.8056%
56% × 0.8044.8%
44.8% × 0.8035.84%
Total dilution across three rounds: 70% → 35.84%. Not 70% − (3 × 20%) = 10%.
Common mistakes
- Subtractive math (e.g. 70% − 20% − 20% − 20% = 10%) — this is wrong by a wide margin.
- Forgetting to compound the option pool expansion (covered separately in the option-pool lesson).
- Ignoring ESOP refreshes between rounds.