Definition
Dilution is the reduction in an existing shareholder's ownership percentage when new shares are issued (new financing, option grants, or convertible conversions).
How to use it
- Dilution can come from new investment, option pool increases, and SAFE/note conversions.
- Always specify the basis (issued shares vs fully diluted).
Common mistakes
- Looking only at headline valuation instead of the full dilution package (pool, convertibles, etc.).
- Mixing different ownership bases in the same analysis.
Why this matters
This term matters because cash timing and risk are usually the difference between a plan that works on paper and a plan that survives. Use consistent definitions so decisions are comparable over time.
Practical checklist
- Write a 1-line definition for "Dilution" that your team will use consistently.
- Keep the time window consistent (weekly/monthly/quarterly) when comparing trends.
- Segment results (channel/plan/cohort) before drawing big conclusions from blended averages.
- Use a calculator that references this term (e.g., Pre-money vs Post-money Valuation Calculator) to sanity-check assumptions.
- Read the related guide (e.g., Pre-money vs post-money valuation: formulas, ownership, and pitfalls) for context and common pitfalls.
Where to use this on MetricKit
Calculators
- Pre-money vs Post-money Valuation Calculator: Convert between pre-money and post-money valuation and estimate investor ownership from a financing round size.
- Pro Rata Investment Calculator: Estimate how much you need to invest in a new round to maintain your ownership percentage (simplified).
- Option Pool Shuffle Calculator: Estimate founder dilution impact when the option pool is increased to a target percent of post-money (simplified).
- SAFE Conversion Calculator: Estimate how a SAFE converts in a priced round using a valuation cap and/or discount (simplified).
- Convertible Note Conversion Calculator: Estimate how a convertible note converts in a priced round with interest plus a valuation cap and/or discount (simplified).
Guides
- Pre-money vs post-money valuation: formulas, ownership, and pitfalls: Learn pre-money vs post-money valuation, how investor ownership is estimated, and why the option pool shuffle changes effective dilution.
- Pro rata rights: what they mean and how to estimate your check size: A practical guide to pro rata rights: maintaining ownership, estimating dilution if you don't participate, and common allocation pitfalls.
- Option pool shuffle: how it impacts founder dilution (with example): Understand the option pool shuffle, why it's negotiated, and how a post-money option pool target changes dilution for existing holders.
- SAFE: what it is, valuation cap vs discount, and conversion basics: A practical guide to SAFEs: how valuation caps and discounts work, what converts in a priced round, and common modeling pitfalls.
- Convertible note: interest, cap/discount, and conversion basics: A practical guide to convertible notes: how interest accrues, how caps and discounts affect conversion price, and common modeling pitfalls.