Each funding round is priced by a pre-money valuation and the cash a new investor puts in. The investor's stake and the ESOP option pool are carved out of the company as percentages of the post-money valuation; what is left is shared by everyone who already held equity, scaled down proportionally — that shrinkage is dilution:
Post-money = Pre-money + Investment
Investor share = Investment / Post-money
Pool share = target pool % (set aside for future hires)
Existing share = 1 − Investor share − Pool share
scale = Existing share / (old Founders % + old Investors %)
new Founders % = old Founders % × scale
new Investors % = old Investors % × scale + Investor share
new Pool % = target pool %
Price / share = Pre-money / shares outstanding before the round
- Pre-money valuation — what the company is deemed worth right before the new cash arrives; higher pre-money means less dilution for existing holders.
- Investment raised — the cheque size; a bigger raise at the same pre-money buys the investor a bigger slice, diluting everyone else more.
- Option pool — VCs typically require a fresh option pool (10–20%) reserved for future hires; because it is carved out before the money arrives, this "pool shuffle" dilutes founders, not the incoming investor.
- Raise This Round — commits the round and stacks a new layer on the cap-table tower; each layer is a snapshot of ownership right after that round closed.
This is exactly the arithmetic behind a real startup's cap table across seed, Series A, Series B and beyond — founders typically fall from 100% ownership into the 10–30% range by the time a company reaches a late-stage round, purely from successive rounds of this dilution math.