What is Cap Table Dilution?
Cap Table Dilution
Cap Table Dilution refers to the reduction in existing shareholders' equity ownership percentage caused by the issuance of new stock, option pool expansions, or conversion of SAFE notes.
Why It Matters for Startups
Essential for founders to model how option pool expansions and convertible note caps impact equity ownership before closing term sheets.
Detailed Deep Dive
Cap Table Dilution refers to the reduction in existing shareholders' equity ownership percentage caused by the issuance of new stock, option pool expansions, or conversion of SAFE notes.
Frequently Asked Questions
Q:How does cap table dilution affect startup founders?
When new shares are issued in a funding round, the total share count increases, reducing the founder's percentage ownership of the business.
Q:Does dilution always decrease the financial value of founder shares?
Not necessarily. If the company's valuation increases significantly in the funding round, a smaller percentage of a larger company equals a higher total dollar value.
Quick Facts
- CategoryFunding
- Key ApplicationFounder equity modeling, unallocated option pool sizing, and venture round structuring
Coverage Trend12 Weeks
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