model-cap-table-and-dilution

name

model-cap-table-and-dilution

description

Model a startup cap table and the dilution a round causes — including option-pool shuffle, pro-rata, and post-money SAFE conversion — with worked arithmetic. Produces a post-round ownership table and surfaces the post-money-cap dilution gotcha. Reach for this when the user asks "what does my cap table look like after this round?", "how much do I get diluted?", "how does my SAFE convert?", or "what option pool should I set aside?". Used by `fundraising-strategist` (primary).

Skill: model-cap-table-and-dilution

Invoked by: fundraising-strategist (primary).

When to invoke: "model my cap table after this round"; "how much dilution does this cause?"; "how does my SAFE convert at the priced round?"; "how big an option pool?"; "what's my pro-rata?".

Output: a post-round ownership table (fully diluted), the dilution each party takes, and an explicit call-out of the option-pool shuffle and the post-money-cap gotcha when they apply.

This is founder-side literacy and arithmetic — NOT legal, tax, or accounting advice. Final numbers belong in a cap-table tool and (for a priced round) with counsel.

Core mechanics (the math you must get right)

• Fully diluted shares = common + options (granted + pool) + as-converted preferred + as-converted SAFEs/notes. Ownership % is always computed on the fully diluted base.
• Post-money valuation = pre-money valuation + new money raised. Investor % (priced round) = new money ÷ post-money.
• Option-pool shuffle (the founder tax). When investors require an option pool (or top-up) created before the round, it is carved out of the pre-money. Effect: the pool dilutes the existing holders (founders), not the new investors. A "$8M pre, $2M raise, 10% post-money pool" is materially worse for founders than the same round with the pool taken post-money — always clarify which.
• Post-money SAFE (Y Combinator, post-2018). The cap is a post-money number: the SAFE holder's ownership % ≈ investment ÷ post-money cap, and that percentage is locked. Consequence — the post-money-cap gotcha: every additional SAFE, and the option pool created at the priced round, dilute the founders, not the earlier post-money SAFE holders. You must sum the SAFE stack to see true founder dilution; modeling one SAFE in isolation understates it. (Pre-2018 pre-money SAFEs behaved differently — confirm which instrument you hold.)
• Discount & cap interaction. A SAFE converts at the better of the valuation cap or the discount applied to the priced-round price; MFN gives the holder the best terms granted to any later SAFE.
• Pro-rata. A pro-rata right lets an investor buy enough of the next round to maintain their ownership %; exercised pro-rata reduces how much of the new round is available to new investors.

Procedure

1. Get the starting cap table (fully diluted): founders, existing options + unallocated pool, prior SAFEs/notes with their caps/discounts.
2. Identify the instrument for this round: priced equity, or SAFE(s). For SAFEs, record each one's amount, cap (post- vs pre-money), discount, and MFN.
3. For a priced round: compute investor % = new money ÷ post-money. If a pool top-up is required pre-money, add it to the pre-money side first (it dilutes existing holders), then layer the new money.
4. For SAFEs converting at a later priced round: for each SAFE, take the better of cap-implied price or discounted price; convert to shares; include every SAFE plus the new pool in the fully diluted base before computing final percentages.
5. Build the post-round fully diluted table: every party's shares and %, with the dilution delta for founders.
6. Surface the gotchas explicitly: name the option-pool shuffle (and who bears it) and, for post-money SAFEs, the stack effect on founders.
7. Sanity-check against the milestone: is the founder dilution proportionate to what the raise buys? (Typical single-round dilution lands roughly 15-25% at seed/Series A — a range, market-dependent, retrieval-date 2026-06; not a guarantee.)

Worked example — post-money SAFE conversion + the gotcha

Pre-round: 10,000,000 fully diluted shares, all founders. Raise: a $2,000,000 post-money SAFE on a $10,000,000 post-money cap.

• SAFE holder's locked ownership = 2,000,000 ÷ 10,000,000 = 20%.
• So post-SAFE the founders hold 80% = the existing 10,000,000 shares; the SAFE will convert to shares equal to 25% of the pre-SAFE count (10,000,000 × 20/80 = 2,500,000), giving 12,500,000 fully diluted, of which the SAFE is 2,500,000 = 20%. ✓

Now a second $1,000,000 post-money SAFE on the same $10M cap before any priced round:

• Second holder's locked ownership = 1,000,000 ÷ 10,000,000 = 10%.
• Both SAFEs are locked: SAFE-1 = 20%, SAFE-2 = 10%, together 30%.
• The founders now hold 70%, not 80%. The second SAFE diluted the founders — not the first SAFE holder, whose 20% is fixed. This is the post-money-cap gotcha: the founder absorbs every later SAFE.

Then at the priced Series A, a 10% post-money option pool required pre-money dilutes the founders again (carved from the pre-money), and the new lead's % comes out of the post-money — founders end well below a naive "100% − 30%" estimate. Model the whole stack.

Guardrails

• Always compute ownership on the fully diluted base — common-only percentages mislead.
• Always clarify pre- vs post-money for both the valuation and the option pool — the shuffle is the most common founder surprise.
• Always sum the SAFE stack for post-money SAFEs — one-SAFE math understates founder dilution.
• Confirm SAFE vintage (post-money YC SAFE vs older pre-money) — the conversion math differs.
• This is literacy + arithmetic, not advice — final numbers belong in a cap-table tool; a priced round's docs route to legal-ops-clm, model/valuation defensibility to finance. See ../../knowledge/term-sheet-and-safe-essentials.md.