Term Sheet Calculator (Valuation & Dilution Scenarios)
last updated: Feb 8, 2026
You have a term sheet in hand, or you are trying to manufacture one. You need to understand the math immediately because one wrong variable here determines whether you own 60% or 40% of your company after the ink dries.
TL;DR
A term sheet calculator is a modeling tool used to forecast founder equity dilution by adjusting variables like pre-money valuation, investment size, and option pool creation. It reveals the "fully diluted" ownership percentage before you sign binding legal documents.
Key Takeaways:
Key Takeaways:
- Benchmark: Seed rounds typically result in 20–25% investor ownership and a 10–15% option pool.
- Rule: The "Option Pool Shuffle" dictates that the employee pool almost always comes out of your pre-money valuation, not the investor's slice.
- Warning: A high "headline valuation" is often a trap if it comes with a massive (20%+) option pool requirement.
Glossary
- Pre-Money Valuation: The value of the company before the new cash hits the bank. This is the primary lever for negotiation. Check the difference between term sheet vs SAFE structures to see how this timing changes.
- Post-Money Valuation: The pre-money valuation plus the investment amount. Ownership percentages are calculated based on this number.
- The Option Pool Shuffle: A standard VC tactic where the unallocated employee stock pool is included in the pre-money valuation, effectively diluting only the founders, not the new investors. Read the original breakdown by Venture Hacks.
- Fully Diluted Basis: Your ownership percentage assuming all convertible securities are converted and all options are exercised.
How to calculate dilution manually
Use this scenario logic to benchmark your current deal. These calculations assume a standard Seed Round raising $2,000,000. You can model this in a simple spreadsheet or use a dedicated seed cap table builder.
Sample math (The "Shuffle" logic)
To replicate standard deal numbers, you must understand the order of operations. Here is how a Market Standard deal is calculated:
$10M * 15% = $1.5M in value.
100% — 20% (Investors) — 15% (Option Pool) = 65% Ownership.
Note: If the option pool was created post-money (rare), the founders and investors would share the dilution, resulting in higher founder ownership. Almost no VC agrees to this.
Sample math (The "Shuffle" logic)
To replicate standard deal numbers, you must understand the order of operations. Here is how a Market Standard deal is calculated:
- Determine Post-Money:
- Calculate Investor Share:
- Calculate Option Pool (The Shuffle):
$10M * 15% = $1.5M in value.
- Calculate Founder Share:
100% — 20% (Investors) — 15% (Option Pool) = 65% Ownership.
Note: If the option pool was created post-money (rare), the founders and investors would share the dilution, resulting in higher founder ownership. Almost no VC agrees to this.
Benchmarks: Good vs. bad deals
Not all term sheets are created equal. Compare your offer against these scenarios based on real B2B term sheet examples.
According to Futuresight's seed benchmarks, median dilution typically hovers around 20%, but aggressive option pools can push this significantly higher.
Pre-money vs. post-money pool
The distinction between where the option pool comes from is arguably more important than the valuation itself.
Pre-money pool (The trap)
This is the industry standard. The investor says, "We want a 10% pool." That 10% comes entirely out of your ownership before their money buys shares. You pay for the future employees; they don't.
Post-money pool (The unicorn)
In this scenario, the pool is created after the investment. If you need a 10% pool, you and the investor are both diluted to create it. It aligns incentives perfectly but is extremely difficult to negotiate unless you have multiple term sheets.
Pre-money pool (The trap)
This is the industry standard. The investor says, "We want a 10% pool." That 10% comes entirely out of your ownership before their money buys shares. You pay for the future employees; they don't.
Post-money pool (The unicorn)
In this scenario, the pool is created after the investment. If you need a 10% pool, you and the investor are both diluted to create it. It aligns incentives perfectly but is extremely difficult to negotiate unless you have multiple term sheets.
Risks
1. The valuation trap
A high "headline valuation" (e.g., $15M Pre) looks great on TechCrunch. But if it comes with a 25% option pool and a 2x liquidation preference, you have effectively sold a huge chunk of your company for vanity metrics. Always calculate the price per share, not just the valuation.
2. The hiring plan disconnect
VCs often demand a 15–20% pool "just to be safe." If your hiring plan for the next 18 months only requires 8% equity, you are giving away free stock. Map out exactly who you need to hire and negotiate the pool size based on data, not feelings.
A high "headline valuation" (e.g., $15M Pre) looks great on TechCrunch. But if it comes with a 25% option pool and a 2x liquidation preference, you have effectively sold a huge chunk of your company for vanity metrics. Always calculate the price per share, not just the valuation.
2. The hiring plan disconnect
VCs often demand a 15–20% pool "just to be safe." If your hiring plan for the next 18 months only requires 8% equity, you are giving away free stock. Map out exactly who you need to hire and negotiate the pool size based on data, not feelings.
Will a perfect term sheet get you to $10k MRR?
Mastering the term sheet calculator is a necessary defense mechanism, but it is not a growth strategy. You can engineer minimal dilution on paper, but if your core offer is weak, your equity is worth zero. Focus on revenue traction first — leverage in negotiation comes from a business that works, not a spreadsheet that looks nice.
FAQ
- You:What is a "standard" option pool size for Seed rounds?Guide:In the current market, expect investors to ask for 10–15%. Anything above 20% is usually aggressive and implies the VC thinks you need to hire an entirely new management team.
- You:How can I reduce the option pool dilution?Guide:Build a hiring plan. Instead of accepting a blanket 15% pool, show a hiring plan for the next 18 months that only requires 8–10%. VCs often accept data-backed pushback here.
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