Entrepreneurship

Dilution and the Cap Table

The napkin math of ownership: what a cap table is, how each round and option pool shrinks your slice, and why founders who can't do this arithmetic sign away more than they think.

  • Beginner
  • 16 min total
  • 12 chapters

What decision this helps you make: What any financing, option pool, or grant actually does to your ownership, computed before you sign, not discovered at exit.

What this topic is

The cap table is the ledger of who owns what: founders, investors, employees, and everything convertible into shares. Dilution is each slice shrinking as new shares are issued; the arithmetic is simple, relentless, and routinely misunderstood at signing time.

Why it matters

Founders regularly end multi-round journeys owning far less than they modeled, because dilution compounds, option pools get carved from founders pre-money, and stacked SAFEs convert all at once. Every one of those surprises is preventable with fifth-grade math applied before signatures.

Who should learn it

Founders taking any outside money or issuing any equity, early employees decoding offers, and bootstrappers who want to know exactly what they're preserving.

What you will understand

  • The cap table as a fully-diluted ledger (everything convertible counts)
  • Round math: pre-money, post-money, and the new-shares mechanic
  • The option-pool shuffle: the dilution hiding in "standard terms"
  • SAFE stacking and why deferred pricing isn't deferred dilution

Prerequisites

Common misconception

"Dilution is bad. My percentage went down." Dilution is a PRICE, not a verdict: owning 60% of a $2M company is worth less than 35% of a $20M one. The mistake isn't accepting dilution; it's accepting it blindly: not knowing the end-state percentage, the pool carve-out, or the preference stack that determines what your slice is worth when money actually returns.