Fully Diluted Valuation
Company value calculated using ALL shares, including unexercised options and unconverted instruments.
Definition
Fully diluted valuation accounts for every share that could potentially exist: outstanding shares, unexercised options, unvested RSUs, the remaining option pool, and shares from converting SAFEs, notes, and warrants. It gives a more realistic picture of ownership than basic share counts. Nearly all startup valuations and equity calculations use the fully diluted share count.
Why it matters
Your ownership percentage should always be calculated on a fully diluted basis. If someone tells you that you own 0.1% but that is on an issued-shares basis, your actual fully diluted ownership is lower because of the option pool, outstanding SAFEs, and other potential shares.
Example
A company has 8M outstanding shares, a 2M share option pool, and SAFEs that will convert into 1M shares. Fully diluted share count is 11M. At a $110M valuation, each share is worth $10. On a basic count, it would appear to be $13.75.