Dilution Modeling
Projecting future ownership percentages based on expected fundraising rounds and pool expansions.
Definition
Dilution modeling is the process of projecting how your ownership percentage will decrease through future funding rounds, option pool expansions, and convertible instrument conversions. A basic model estimates 15-25% dilution per round. By modeling 2-3 future rounds, you can estimate what your current equity might be worth at exit after all expected dilution.
Why it matters
Dilution modeling gives you a realistic picture of your equity's potential value. If you own 0.1% today and expect two more rounds of 20% dilution each, your exit ownership is roughly 0.064%. On a $1B exit, that is $640K, not $1M.
Example
You own 0.2% after Series A. Modeling Series B (20% dilution) and Series C (15% dilution): 0.2% x 0.80 x 0.85 = 0.136%. At a $500M exit with $80M in preferences, your shares are worth about $570K after preferences.