Startup Equity Dilution Calculator

Free equity dilution target calculator

Startup Equity Dilution Calculator

Free equity dilution target calculator

startup equity dilution calculator

Download Equity Dilution Calculator

When seeking investment, startup founders need to understand one of two things: how their valuation changes based on the investment received and the equity sold or how much equity they would have to sell based on different round sizes and valuations. 

The Equity Dilution Calculator will help you work out and understand both of these scenarios.

How to use the equity dilution calculator

This calculator shows how to determine a founder’s equity dilution after a single round of investment. You can use this calculator to determine the equity percentage you will need to sell to investors based on your ideal pre-money valuation or calculate your pre-money valuation based on a target equity percentage you intend to offer your investors.

What is an equity dilution calculator?

An equity dilution calculator quantifies the impact of issuing new shares on the ownership stakes of existing shareholders. In simpler terms, it’s a device that measures how the ‘pie’ gets divided among its recipients.

Picture a party where the guests are eagerly awaiting their share of a pizza. As new attendees trickle in, the host must divide the pizza into smaller portions to accommodate everyone. More guests lead to smaller and smaller slices. Similarly, the issuance of additional shares diminishes the relative ownership of existing stakeholders.

Equity dilution calculators function in a similar manner. They assist entrepreneurs and investors in navigating the complex terrain of share allocation. By inputting relevant data, you can discern the consequences of dilution on their ownership percentage and the company’s overall worth.

How Does An Equity Dilution Calculator Work?

An equity dilution calculator works by using a series of inputs and formulas to determine the impact of issuing new shares on the ownership stakes of existing shareholders. It helps companies, investors, and founders understand the consequences of equity dilution during funding rounds.

The formula uses three figures, all of which are mathematically interlinked

  1. The amount being raised
  2. The equity being sold
  3. The pre-money valuation 

By knowing (or estimating) two of these three figures, you can calculate the other – and if you make an adjustment to one of the figures it will have an impact on the other two. For example, if the company valuation reduces through negotiation with investors, and you are still raising the same amount of capital, then the equity percentage you will need to sell to investors will increase.

Therefore this equity dilution calculator allows you to test the impact of different variables on your overall ownership of the company during your funding round.

Here’s a step-by-step overview of how it works:

  1. Input data (choose two of three):
    • Pre-money valuation: The valuation of the company BEFORE investment
    • Investment: The amount of capital an investor plans to contribute.
    • Target Ownership Percentage: The desired ownership percentage the investor aims to achieve after the new shares are issued.
  2. Perform calculations:
    • Percentage equity sold: Calculates the equity share of investors based on your investment amount and pre-money valuation using the formula; Amount being raised / (Pre-money valuation + Amount being raised) 
    • Pre-money valuation: Calculates the valuation of the company before the funding round using the formula; (Amount being raised / percentage equity sold) – Amount being raised.
    • Post-money valuation: Determine the valuation of the company after the funding round using the formula; Pre-money Valuation + Investment.
  3. Evaluate the results:
    • Assess the impact of the new share issuance on existing shareholders’ ownership stakes.
    • Understand the implications of the dilution on the company’s overall valuation, both pre- and post-funding round.

By following these steps, an equity dilution calculator provides valuable insights into the effects of new share issuance, empowering founders to make informed decisions about investments, equity allocation, and company growth strategies.

When do I use an equity dilution calculator

An equity dilution calculator emerges as a trusty ally at various junctures in a company’s journey, serving to show the effects of new share issuance on existing ownership stakes.

When a startup is raising capital from external investors, an equity dilution calculator helps determine the impact of new share issuance on existing ownership stakes.

Equity Dilution example

The fictional case studies below help to illustrate the equity dilution calculator’s importance for entrepreneurs and investors alike. Whether navigating the uncharted waters of venture capital investments, conducting a crowdfunding campaign, or negotiating with an Angel Investor, simplifying complex calculations will foster well-informed decision-making.

Case Study: The Budding Green Tech Startup

SolarTech is a promising green technology startup that develops cutting-edge solar panels. A venture capitalist (VC) approaches, offering a £5m investment for a piece of the pie and has suggested that the current valuation of the company (pre-money) is £20m.

Utilising an equity dilution calculator, SolarTech’s team determines that they will need to sell 20% equity to the VC. Consequently, the current founders and shareholders’  stakes shrink proportionally (to 80%), but the overall value of their holdings increases as the company will have a value of £25m after investment (post-money valuation). 

The founders meet some resistance from their initial shareholders at this deal. They would much prefer the VC firm invest £5m at 15% and have asked the founders to negotiate with the VC firm.

Using the equity dilution calculator, SolarTech’s founders calculate that with a 15%, the VC firm would need to agree a pre-money valuation of £28.3m, rather than this initial £20m. Giving the company a £33.3m post-money valuation.

Eventually, the SolarTech founders, their existing shareholders, and the VC firm agree on a deal of £5m for 18% at a £22.7m per-money valuation.

This calculator proves to be a beacon, guiding SolarTech through the nuances of equity distribution, and allows them to negotiate their position with investors ensuring a fair and balanced outcome for all.

What Is Equity Dilution?

Equity dilution is the process in which a shareholder’s ownership percentage in a company decreases due to the issuance of new shares. This typically occurs when a company raises capital through funding rounds, grants stock options to employees, or undergoes mergers and acquisitions. As new shares are issued and distributed to new shareholders, the relative stake of existing shareholders diminishes, even though the company’s overall value may increase. It’s important for entrepreneurs and investors to be aware of equity dilution, as it can impact their control over the company and the potential returns on their investment.

startup equity dilution calculator

Download Equity Dilution Calculator

So you’re a founder who wants to determine how much equity you will have after a single round of investment? You might need to understand how your company valuation will change based on the investment you receive and the equity sold. Or you might want to know how much equity you would have to sell based on different round sizes and valuations.

First, it’s important to determine how much equity you want to offer investors and this calculator will help you work out what that is. 

Second, it can be used to assess the impact of negotiations. For example, if an investor suggests a reduced valuation, what impact does that have on the equity they will own? And how much this will dilute your equity. The calculator also means that, if you pitch 10% equity, but the investor wants 25%, you can see how this impacts the company valuation.

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