The dilution math every founder needs to know before raising a round

Published: 2026-04-08T16:19:00.000Z

Sixty-nine percent of co-founders in digital health IPOs owned less than five percent of their company when they went public. Forty-four percent had no reported equity at all. The median individual founder ownership at IPO was just two percent. Those numbers come from looking at thirty-four digital health companies that went public — Smile Direct Club, Doximity, Hinge, Omada — all public records. Before you panic, here is the caveat. Those are digital health companies. They eat cash for breakfast, lunch, and dinner. They need massive rounds before they make a single dollar. A lean B2B SaaS startup with good unit economics will do much better. But the trend is still real. Founder ownership gets eaten alive by funding rounds. The question is not whether you will get diluted. You will. The question is how much you can protect, and whether what is left at the end is worth the years you gave. You and your co-founder start a company. You split equity fifty-fifty. No outside money. No employees with equity yet. Your cap table is simple — Founder A at 50 percent, Founder B at 50 percent. This is day one. It will never look this clean again. You raise a seed round. Let us say one million dollars at a five million pre-money valuation. Pre-money is five million. Post-money is six million. The investor gets one-sixth of the company, which is about 16.6 percent. But here is where first-time founders get tripped up. They forget about the option pool. Investors almost always make you set aside shares for employees before they invest, and they take that pool out of the pre-money valuation. That means you eat the dilution, not them. After a typical seed round, Founder A ends up with 35 percent, Founder B gets 35 percent, the seed investor takes 20 percent, early employees get about 7 percent, and a small option pool of about 3 percent remains for future hires. You went from 50 percent each to 35 percent each — a 30 percent dilution in just one round, and you have not even raised a Series A yet. Now you raise your Series A. Let us say eight million dollars at a forty million post-money valuation. The new investor will buy enough shares to own 20 percent of the company, and if nothing else changed, each existing shareholder would simply lose 20 percent of their ownership — founders would go from 35 percent to 28 percent, the seed investor from 20 percent to 16 percent. But two things almost always happen at Series A that make the dilution worse. First, you need a bigger option pool. You are about to hire aggressively and your existing pool of 3 percent is nowhere near enough, so the Series A investor will make you increase it to 10 percent — and that new pool comes out of the pre-money valuation, meaning you pay for it entirely. Second, your seed investor may have pro-rata rights, the contractual right to invest more money in this round to keep their ownership percentage from shrinking. If they exercise it, the company issues even more new shares, which dilutes you further. After all of that, Founder A drops from 35 percent to about 22.7 percent, Founder B does the same, the seed investor stays at 20 percent because they used their pro-rata rights, the Series A investor gets their 20 percent, early employees dilute down to about 4.5 percent, and the option pool jumps to 10 percent. You went from 35 percent to 22.7 percent — another 35 percent dilution of what you had. The seed investor protected themselves completely because they had the contractual right and the cash to exercise it. You do not have millions lying around to buy more shares, so you just take the hit. This is not an extreme example. Twenty-five to thirty percent total dilution in a Series A round is normal. The math compounds from there. After seed you own 35 percent. After Series A you own about 22.7 percent. After Series B, diluted by roughly another 20 percent, you drop to about 18 percent. After Series C, another 15 to 20 percent dilution takes you down to about 14 or 15 percent. By the time you are at Series C or D, a non-founder CEO might own three to five percent. A founder who started with 50 percent might own ten to fifteen percent. And that is before anything goes wrong, like a down round. Careem is the biggest startup exit the Middle East has ever seen. Uber bought it for 3.1 billion dollars in 2019 and the founders walked away with life-changing money. STC Ventures put one million dollars into Careem's seed round in 2013 and owned 6.4 percent at the time of the Uber acquisition — a return of about two hundred million dollars, a 100x outcome. Think about that. An early institutional investor owned only 6.4 percent at exit. Mudassir Sheikha and Magnus Olsson had raised multiple rounds from investors including Kingdom Holding and Daimler, and by the time of the 3.1 billion dollar exit, the founders likely owned somewhere between ten and twenty percent combined — maybe less. Still a massive outcome, but a far cry from the 50 percent each they started wi