Fully diluted
Fully diluted means counting every share that exists plus every share that could exist, and using that total as the denominator of everyone's ownership. Issued shares, the option pool whether or not anyone holds it, warrants, and anything else convertible.
Your percentage is a fraction. The numerator is your shares. The denominator is the fully diluted count, and it is the side that moves.
The same founders, two answers
| Holder | Shares |
|---|---|
| Founders | 8,100,000 |
| Option pool, reserved, none granted | 900,000 |
| Total | 9,000,000 |
Count issued shares only, and the pool is not issued:
8,100,000 ÷ 8,100,000 = 100.0%
Count fully diluted:
8,100,000 ÷ 9,000,000 = 90.0%
Same company, same day, same share certificate. Ten points of difference, and no one holds them. The pool is reserved for employees who have not been hired.
Fully diluted is the count that includes what has been promised as well as what has been issued. If a document quotes a percentage without saying which basis it used, that is the first thing to ask.
What a million shares does
Take the same cap table and enlarge the pool by 1,000,000 shares. Nobody buys anything. No money comes in. The denominator moves from 9,000,000 to 10,000,000.
| Holder | Shares | Before | After |
|---|---|---|---|
| Founders | 8,100,000 | 90.0% | 81.0% |
| Option pool | 900,000 → 1,900,000 | 10.0% | 19.0% |
| Total | 9,000,000 → 10,000,000 | 100.0% | 100.0% |
The founders lost 9.0 points and no money changed hands.
That is 9.0 points on this cap table, at this pool size. Change either and the number changes with it, so the figure to carry away is the mechanism rather than the result.
The same nine points appear on the SAFE page, where three post-money SAFEs totalling $850,000 produced them. On this cap table, a million reserved shares and $850,000 of sold SAFEs cost the founders the same amount. The denominator does not record where a share came from.
Three terms that work on the denominator
- An option pool top-up taken out of the pre-money enlarges the denominator before the investor's percentage is calculated, so it dilutes the existing holders and not the incoming one.
- A valuation cap on a post-money SAFE fixes the holder's share of the denominator, and everything else moves around it.
- Pre-money versus post-money valuation is a question about whether the new shares sit inside or outside the number being divided.
Each of those is the same fraction, worked on the bottom.
What to check in your own documents
- Ask which basis every percentage is quoted on, issued or fully diluted. If the document does not say, it is not a number you can act on.
- Ask what is in the fully diluted count. Granted options, the unissued pool, warrants, and any convertible instrument. A count that excludes the unissued pool produces a higher percentage for everyone still in it.
- Ask whether the count is before or after any pool change that forms part of the deal, because the two produce different answers.
Run it on your own numbers
The fraction is simple. Tracking what is in the denominator across a SAFE stack, a pool change and a priced round, and then the round after that, is not.
Promythia holds the denominator for you and shows what each change does to your number. Create a free account and enter your real cap table.
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