Dilution is not punishment — it is math. Every new share issued shrinks your percentage. The question is whether you shrink on terms you modelled, or on terms you discover when Carta sends the post-round export.
Reading time: 8 minutes. Illustrative multi-step cap table with explicit labelling. European founder lens.
Dilution is the drop in your ownership percentage when new shares are created. You can raise at a higher valuation and still own less of the company — because ownership is always your shares ÷ fully diluted shares.
Fully diluted means counting everything that will become shares: outstanding common, converted SAFEs, priced preferred, warrants, and the unallocated option pool. Founders who quote "I still own 80%" without the pool and SAFEs in the denominator are negotiating against themselves.
Dilution happens at predictable checkpoints: SAFEs stacking pre-priced-round, option pool creation or top-up, priced round closes, employee grants from the pool. None of these is inherently bad — you trade ownership for capital, talent, or risk reduction. Bad is when each checkpoint is a surprise.
SAFEs (pre-priced-round): each check is a future slice of the cap table. Post-money SAFEs lock investor % at signing; you absorb follow-on SAFE dilution. Conversion at Series A issues real shares and dilutes everyone who does not convert on the same terms — usually the founders and employees.
Option pool: reserving 10–15% for hires creates new shares. If the pool is carved pre-money at Series A, founders eat most of that dilution before new investor money arrives — the "option pool shuffle." See the option pool entry for the negotiation playbook.
Priced round: new investors buy freshly issued preferred stock. Their % is explicit (e.g. 20% for 20% of post-money). Everyone else is diluted proportionally unless they have pro-rata rights to buy back in.
European founders: you will hear "fully diluted" in US term sheets constantly. EU cap tables follow the same math — the vocabulary just arrives later. Learn it before the first London or Berlin lead sends a TS.
Starting point: solo founder owns 100% (1M shares, no pool, no SAFEs).
Step 1 — SAFEs: €1M raised on post-money SAFEs at €10M combined cap → SAFE pool owns 10%. Founder: 100% × (1 − 0.10) = 90%.
Step 2 — option pool: board creates a 10% option pool pre-Series A (new shares). Founder: 90% × (1 − 0.10) = 81%. SAFE holders also dilute slightly unless their terms say otherwise — another reason to model fully diluted.
Step 3 — Series A: investors buy 20% of the company post-money (new preferred). Founder: 81% × (1 − 0.20) = 64.8%.
Labelled illustrative: real math depends on whether the pool is pre- or post-money, how SAFEs convert relative to the pool, and pro-rata participation. SAFEs convert into the Series A — sequencing matters. Use this as a sanity-check template, not a substitute for a cap table model.
Include SAFEs, pool, and priced round in one view. If your "founder %" ignores the pool, you will sign a Series A term sheet that feels like a bait-and-switch.
A €8M cap on a €10M post-money SAFE is 20% for a €2M stack. Say that out loud before you accept the third €250k check.
12–18 months of realistic grants, not a default TS placeholder. Oversized pre-money pools are silent dilution — see the option pool entry.
Many teams target ≥65–70% founder ownership post-Series A on a "good" path. When the model breaks the floor, fix caps and pool terms early — not after the lead is emotionally committed.
Upload each SAFE (or the batch you are signing). Prism extracts caps, discounts, post/pre variant, and stated pool requirements when they appear in side letters or term sheets. It projects resulting founder ownership against your playbook floor — the minimum % you said you would not cross without renegotiating.
Findings call out when stacked instruments breach that floor, when post-money SAFE stacking concentrates dilution, or when a pre-money pool shuffle is implied in the language. You get severity, market context, and redlines — not a Carta replacement, but a fast pre-signing check on the documents you actually have in hand.
V1 scope: extraction, playbook comparison, findings, and redlines on uploaded docs. Full multi-scenario cap table modelling stays in your spreadsheet; Prism tells you whether the documents you are about to sign violate the rules you already wrote down.
Closed alpha. Premium tier — €49/month, no free tier, no demos. Read the home page if you haven't, then drop your email.
Valuation cap, in plain English — the single number that decides how much of the company you keep when the SAFE converts.
Option pool and the option pool shuffle — the hidden dilution hit that lands on founders at Series A.
Post-money vs pre-money SAFE — why the 2018 post-money default quietly costs you more dilution when stacking SAFEs.
If there's a term you're trying to understand right now and it's not here, tell us — the order we write these in is driven by what founders ask for.
