Meaning
Ownership adjustments that occur immediately after the closing of a funding round show the final distribution of equity among all parties. This post-money dilution is calculated by dividing the number of shares held by a person by the total number of shares in existence after new stock is issued. It represents the actual standing of a shareholder once the capital injection is complete and all previous promises of equity have been satisfied.
Equity Adjustment
Investors often insist on a specific ownership percentage that is only achieved after accounting for all new issuances. Calculating post-money dilution requires including the expansion of the option pool and the conversion of any outstanding notes. This final figure is the one used for governance and dividend distributions.
Future Value
Predicting the outcome of a sale requires understanding the current cap table in its final form. Because post-money dilution lowers the individual stake, a founder must realize that a ten percent pre-money holding will be smaller after the round. This shift is a mathematical certainty when new shares are minted.
Shareholder Impact
Existing holders lose a portion of their voting power whenever the company sells equity. Monitoring post-money dilution helps early employees understand the real value of their stock options. A high degree of dilution can reduce the incentive for the team if the total valuation does not grow fast enough.
