Model VC Dilution Master Your Equity Math

Term Sheet 2026 Calculator: Model Your VC Dilution

last updated: Mar 18, 2026
You finally got a term sheet. But venture capital math is notoriously confusing, and standard terms often favor the investor's side of the table. This guide walks you through calculating your post-money dilution before you sign away your equity.
If you're staring at a term sheet right now, here is exactly how to break down the math.

TL;DR

  • Benchmark: Typical Seed or Series A dilution lands in the 20-25% range.
  • Rule: Always model the new option pool increase into the pre-money valuation.
  • Warning: If you ignore the unissued option pool math, founders absorb the entire dilution hit alone.
How to use this: Build this model step-by-step alongside your own cap table spreadsheet.

Glossary

  • Pre-money valuation: The agreed value of your startup before the new capital hits your bank account.
  • Post-money valuation: The pre-money valuation plus the total new capital raised.
  • Fully diluted shares: The absolute total number of shares outstanding, including all issued shares, unissued option pools, and converting notes.
  • Valuation cap: The maximum effective valuation at which your SAFE or convertible note investors will convert their investment into equity.
  • Option pool: A chunk of equity reserved for future employees to incentivize them.

How to calculate your dilution

  1. Tally existing shares. Gather all outstanding common stock and currently granted options into a single ledger.
  2. Convert the notes. Calculate the exact number of shares your early investors receive when their early agreements convert into equity. Review our breakdown on safe vs convertible note examples for the mechanical differences.
  3. Size the option pool. Determine the target post-money option pool percentage. Standard benchmarks show that investors typically demand a 10-15% unissued option pool that comes entirely out of the founders' side of the cap table.
  4. Compute the share price. Add your existing shares, converted notes, and new option pool shares together. Divide your pre-money valuation by this fully diluted pre-money share count to find the price per share.
  5. Calculate investor shares. Divide the total new investment amount by your new share price.
  6. Build the cap table. Add the new investor shares to the fully diluted pre-money shares to find the new total outstanding shares. Divide each party's shares by this new total to get their final ownership percentages.

Template structure
To run this yourself, set up your spreadsheet using this basic structure. This framework ensures you visualize exactly who absorbs the dilution at each stage.
Shareholder Name
Pre-Money Shares
Post-Money Shares
Ownership %
Founders
8,000,000
8,000,000
64%
Note Holders
1,000,000
1,000,000
8%
Option Pool
1,000,000
1,500,000
12%
New Investors
0
2,000,000
16%

Benchmarks

Based on recent market data, expect typical seed or Series A dilution to fall in the 20-25% range.

Sample math
  • Pre-money valuation: $8,000,000
  • New investment: $2,000,000
  • Target option pool: 10-15%
  • If your pre-money valuation is $8,000,000 and your fully diluted pre-money share count (including the new pool) is 8,000,000 shares, your share price is exactly $1.00. The investor buys 2,000,000 shares for $2,000,000. The post-money total is 10,000,000 shares. The investor owns 20%.

Pre-money vs post-money option pool

Understanding this mechanical difference is critical. A pre-money option pool dilutes only the existing founders before new capital is even added to the math. A post-money option pool dilutes everyone equally, including incoming investors. Unsurprisingly, new investors almost exclusively demand the option pool be calculated pre-money to protect their own target ownership.

Risks

If you blindly accept the investor's cap table model, you will likely lose equity. Failing to account for a massive unissued option pool before the round prices means you pay for future employees entirely out of your own pocket. Furthermore, miscalculating convertible note valuation caps can easily hand early investors an unexpected 3-5% of your company.

Will a perfect term sheet dilution model get you to $10K MRR?

Mastering term sheet math is a critical defensive step, but a pristine term sheet dilution model won't get you to sales. You can have a flawlessly structured cap table, but without business momentum, you won't have the leverage to negotiate favorable terms. Stop agonizing over spreadsheet cells and go build a revenue engine that actually hits $10K MRR. Growth solves dilution.
Take the 90-second audit to calculate your probability of hitting $10k MRR in the next 90 days.
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FAQ
  • You:
    How do converting notes impact my cap table modeling?
    Guide:
    Early notes convert into equity right before the new venture capital is applied. This dilutes the existing founders before the new investors even price their shares.
  • You:
    Why do investors insist on putting the option pool in the pre-money valuation?
    Guide:
    Putting the pool in the pre-money calculation forces the founders to take the entire dilution hit for future employee equity grants. You can learn more about protecting your equity in our term sheet calculator startups guide.
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