Module 7 · Cap tables and dilution
Dilution across rounds
Each round gets a part of what you still own. See how dilution compounds from founding to the Series B, and why your stake can still increase in value.
In this lesson you will learn
- Why dilution multiplies from round to round, and does not add
- How SAFE conversions and pool top-ups add to the dilution of a round
- Why a smaller share of a bigger company can be worth more
- What a down round does to your ownership and to your value
Northwind’s new investors bought 20% in the seed, 20% in the Series A, and 20% in the Series B. Three rounds of 20% sounds like 60%, so Ada and Ben expected to keep 40%. They kept 26.94%. This lesson shows where the rest went. It also shows why the founders are richer on paper after each round, even though they own less.
Dilution in one round
Dilution is the decrease in your percentage when the company issues new shares. You keep the same number of shares, but they become a smaller part of a bigger total. Dilution does not decrease the number of shares that you hold.
Before the round: 1,000,000 ÷ 4,000,000 = 25%
After the round: 1,000,000 ÷ 5,000,000 = 20%
The new investor bought 1,000,000 of 5,000,000 shares, which is 20% of the company. Your share decreased by 5 points, and 5 points is 20% of the 25% that you had. Each holder that does not buy keeps 80% of its old share:
Your share after = Your share before × (1 − part that the round sells)
20% = 25% × (1 − 0.20)
Dilution compounds
The rule above applies again in each round. The next round does not remove 20 points from your start. It gets 20% of the share that you still hold.
Predict first
A founder starts with 100% of her company. Four rounds each dilute her by 20%. What does she own after the fourth round?
Type a guess before you continue. A guess first, even a wrong one, makes the answer easier to remember.
Each round keeps 80% of what she had: 100% × 0.8 × 0.8 × 0.8 × 0.8 = 40.96%. The four rounds remove 20, 16, 12.8, and 10.24 points. Each round removes less, because each round gets a part of a smaller share.
You multiply the rounds. You do not subtract them:
Founders after n rounds = Start × (1 − d1) × (1 − d2) × ... × (1 − dn)
Four rounds of 20%: 100% × 0.8 × 0.8 × 0.8 × 0.8 = 40.96%
Five rounds of 20%: 100% × 0.8^5 = 32.77%
Four rounds of 16%: 100% × 0.84^4 = 49.79%
The last line shows the effect of small changes. Four rounds at 16% in place of 20% keep about 9 more points for the founders.
The full dilution of one round
In the formula, each d is the total dilution of the round. The new money is only one part of it. Two other items often dilute you in the same round:
- SAFEs that convert. A post-money SAFE gets its money ÷ its valuation cap of the company when it converts. The lessons on post-money SAFE math show this in detail.
- A pool top-up. The term sheet usually puts a bigger option pool in the pre-money valuation, so the current holders pay for it. The lesson on the option pool shuffle explains why.
Northwind’s seed round shows the effect. Before the seed, Northwind signed two post-money SAFEs for $2M in total, and together they get 20% of the company. The seed raised $4M at a $16M pre-money valuation, and the term sheet asked for a pool of 12% after the round:
SAFEs convert: keep 1 − 0.20 = 0.80
New money and pool: keep 1 − 0.20 − 0.12 = 0.68
Founders after seed: 100% × 0.80 × 0.68 = 54.40%
The seed investors bought 20%. But Ada and Ben went from 100% to 54.40%, because the SAFEs and the pool got their part in the same round.
Work it out
The founders own 60% before a round. The round sells 20% to new investors and adds a new pool of 10% of the post-money in the pre-money. The company had no pool before. What do the founders own after the round?
The new money gets 20% and the pool gets 10%, so the current holders keep 1 − 0.20 − 0.10 = 70%.
Founders after = 60% × 0.70 = 42%.
The full path, round by round
The worked example shows Northwind from founding to the Series B. The company grants options between the rounds, so each round must top up a pool that employees used.
Worked example · step 1 of 5
Northwind from founding to the Series B
- 1
Founding
Ada and Ben each hold 5,000,000 shares of common stock. Together they own 100%.
Founders = 10,000,000 ÷ 10,000,000 = 100%
A smaller share of a bigger company
The founders’ percentage decreased at each step. But each share became worth more, because each round paid a higher price per share. The paper value of a stake is its shares × the price of the last round:
| After | Founders own | Price per share | Founders’ paper value |
|---|---|---|---|
| Seed | 54.40% | $1.0880 | $10.88M |
| Series A | 36.38% | $2.7288 | $27.29M |
| Series B | 26.94% | $4.0406 | $40.41M |
From the seed to the Series B, Ada and Ben’s share decreased by half, but their paper value increased 3.7 times. The rule is simple: your paper value goes up in a round when the new price per share is higher than the last one. Such a round is an up round. The lesson on dollars and percent explains this idea in more detail.
Paper value is not cash. It uses the price that investors paid for preferred stock. Founders hold common stock, and in a sale, preferred stock gets its liquidation preference first. The lesson on the waterfall shows what founders really get.
Work it out
You own 40% of a startup at a $20M post-money valuation. The next round dilutes you by 20% at a $60M post-money valuation. What is your paper value after the round?
Your new share = 40% × (1 − 0.20) = 32%. Your paper value = 32% × $60M = $19.2M.
Before the round, your paper value was 40% × $20M = $8M. You own less, but your stake is worth 2.4 times more.
Try it: run the company
The simulator runs the full path. Start from Northwind, then change one round at a time:
- Select Lean. It uses one $1M SAFE, no bridge, and smaller pools. Compare the founders’ line after the Series B with Northwind’s.
- Select Northwind again, then open the Pre-seed round. Raise the SAFE money and watch every later bar.
- Open the Series B and lower the pre-money valuation until the explanation calls it a down round.
Simulator
Dilution from founding to the Series B
Set the money, the valuation, and the pool for each round. Watch what the founders own and what it is worth.
As a part of the post-money fully diluted shares.
The seed pool holds 2,205,882 options. A grant cannot be bigger.
- Founders after B
- 26.94%
- All founders together
- Their paper value
- $40.41M
- at $4.0406 a share
- Last post-money
- $150M
- Series B
- Since the seed
- 3.71x
- Change in paper value
At founding
Founders 100%
After the pre-seed
Founders 80%
After the seed
Founders 54.4%
After the Series A
Founders 36.38%
After the Series B
Founders 26.94%
Move the pointer onto a part of a bar, or select it with the Tab key, to see its numbers.
- Founders
- Employees and pool
- SAFE holders
- Seed investors
- Series A investors
- Series B investors
The marks above and below a bar show the median founding team on Carta at that stage.
| Stage | Founders | Paper value | Price per share | Carta median |
|---|---|---|---|---|
| At founding | 100% | — | — | 100% |
| After the pre-seed | 80% | — | — | — |
| After the seed | 54.4% | $10.88M | $1.088 | About 56% |
| After the Series A | 36.38% | $27.29M | $2.7288 | About 36% |
| After the Series B | 26.94% | $40.41M | $4.0406 | 21.8% non-AI, 27.3% AI |
The founders go from 100% to 26.94%. Each round multiplies what they own: the seed (with the pre-seed SAFE that converts in it) by 0.54, the Series A by 0.67, and the Series B by 0.74. The multipliers include the SAFE conversions and the pool top-ups, not only the new money.
But each share is worth more after each round. The price increases from $1.088 at the seed to $4.0406 at the Series B. Thus the founders' paper value increases from $10.88M to $40.41M, even though they own a smaller part.
The lean path keeps 33.16% for the founders after the Series B, against 26.94% for Northwind. The rounds and the option grants are the same. Only the SAFEs, the bridge, and the pool sizes differ, and their effect compounds to about 6 points.
What you can control
The rounds, the prices, and the grants are the same in the Northwind and lean paths. The founders keep 6 more points only because of three choices:
- Fewer stacked SAFEs. Each post-money SAFE gets its money ÷ its cap of the company, and that part comes from the founders. One $1M SAFE at a $10M cap costs 10%. Two SAFEs for $2M cost 20%.
- A pool from the hiring plan. A pool of 10% in place of 12% keeps 1.6 more points for Northwind’s founders at the seed alone. The effect compounds in each later round.
- No bridge. Northwind’s $2M bridge SAFE at a $30M cap got 6.67% just before the Series A.
A higher price also dilutes you less. But a very high price makes the next round difficult. The next round must sell shares at an even higher price, or it is a down round.
When the price goes down
A down round is a round at a lower price per share than the last round. Compare two Series B rounds for Northwind, after the same Series A:
| Series B | Founders own | Price per share | Founders’ paper value |
|---|---|---|---|
| Up round: $30M at a $120M pre-money, 10% pool | 26.94% | $4.0406 | $40.41M |
| Down round: $20M at a $50M pre-money, 10% pool | 23.64% | $1.6547 | $16.55M |
In the down round, the founders own only 3.30 points less. But their stake is worth $23.86M less. Ownership changes a little, and value changes a lot.
This model also does not show one cost. Earlier preferred stock usually has anti-dilution protection. In a down round, that protection gives the earlier investors more shares and dilutes the founders more. The lesson on anti-dilution shows the math.
The next lesson compares these paths with real data. The Carta Founder Ownership Report 2026 counts rounds from 2021 to 2025. In it, the median founding team owned about 56% after the seed and 36% after the Series A. Northwind’s founders stay near these medians.
Quiz · question 1 of 5
Test what you learned
Four rounds each dilute you by 20%. You started with 100%. What do you own now?
Key takeaways
- 1.Founders after n rounds = start × (1 − d1) × (1 − d2) × ... × (1 − dn). Each d is the total dilution of that round.
- 2.The total dilution of a round includes the new money, the pool top-up, and the SAFEs that convert in the round.
- 3.Four rounds that each dilute you by 20% keep 40.96% for you, not 20%.
- 4.Your paper value goes up in a round when the new price per share is higher than the last price per share.
- 5.In a down round, your ownership and your value decrease at the same time.
Sources
- 1.Founder Ownership Report 2026. Carta, 2026-03-12.
- 2.State of Private Markets: Q1 2026. Carta, 2026-05-29.
- 3.Post-Money Safe User Guide. Y Combinator.