Founder Dilution Explained: What Happens When You Raise Money

Founder reviewing a startup cap table showing ownership dilution after fundraising
Founder reviewing cap table changes after raising money

Founder dilution is what happens when your ownership percentage decreases after your company issues equity or future equity rights to investors, employees, advisors, or note holders. You may still own the same number of shares, but you own a smaller percentage of the company because the total share count has increased.

If you’re raising money, dilution is not a side detail. It affects control, motivation, future fundraising room, employee hiring plans, and your personal outcome at exit. This guide explains what dilution means, how it shows up in seed and Series A rounds, how Simple Agreements for Future Equity and convertible notes convert, how option pools change the math, and how you can decide whether the trade is worth it.

What Is Founder Dilution In Simple Terms?

Founder dilution is the reduction of your ownership percentage when your company creates new ownership claims. Those claims may come from new investor shares, employee stock options, advisor grants, Simple Agreements for Future Equity, convertible notes, warrants, or option-pool increases. Continue Reading... 

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