# Equity dilution

> Dilution is the drop in an existing shareholder's percentage of a company when new shares are issued, for example in a funding round, when an option pool is created or enlarged, or when SAFEs and convertible notes convert. The holder keeps the same number of shares but owns a smaller slice. Dilution is not a loss of value if the company is worth more after the round.

Source: https://delsivo.com/glossary/dilution · Updated 2026-11-06

## Key takeaways

- New ownership = your shares divided by the new total shares.
- Option pools created before a round dilute existing holders only.
- Pro rata rights let an investor buy into a round to limit its dilution.

## How dilution is calculated

Divide the shares you hold by the total shares after the new issue. A founder holds 4,000,000 of 10,000,000 shares: 40 percent. The company issues 2,500,000 new shares to investors. The founder still holds 4,000,000, now of 12,500,000: 32 percent. The founder's stake fell by 8 percentage points, or 20 percent of what they had.

## Common sources of dilution

- A priced round, where new investors buy newly issued shares.
- An option pool created or topped up, often required before a round so that only existing holders bear it.
- SAFEs and convertible notes converting at the next priced round.
- Warrants or advisor grants, which are small one by one but add up.

## Dilution in a fund's process

A fund models dilution twice: for the founders, to check they keep enough ownership to stay motivated, and for itself, to see what its stake looks like after the next two rounds. That is where [pro rata rights](https://delsivo.com/glossary/pro-rata-rights) and reserves for [follow-on investment](https://delsivo.com/glossary/follow-on-investment) come in.

## Common confusions

- Dilution versus loss: 32 percent of a company worth more can be worth more than 40 percent before.
- Anti-dilution protection adjusts an investor's conversion price in a down round. It does not stop ordinary dilution.
- Percentage points versus percent: a drop from 40 to 32 percent is 8 points, but a 20 percent reduction.

## Frequently asked questions

### How much dilution is normal in a seed round?

It varies by market and round. Check recent data for your region and stage, and model it on your own cap table.

### Does a SAFE cause dilution?

Yes, when it converts. Until then it is a right to future shares, which is why fully diluted cap tables include it.

### Can existing investors avoid dilution?

They can limit it by buying their pro rata share of new rounds, if they have that right and choose to use it.

## Related pages

- [Cap table and dilution calculator](https://delsivo.com/tools/cap-table-dilution-calculator)
- [Cap table](https://delsivo.com/glossary/cap-table)
- [Pro rata rights](https://delsivo.com/glossary/pro-rata-rights)
- [SAFE note](https://delsivo.com/glossary/safe-note)