Fundraising · Lesson 4 · 14 min
Dilution, round after round
Dilution does not add up — it compounds. Model a full Seed → Series A → Series B plan and watch your founder stake erode round after round, so you raise on purpose instead of by reflex.
Dilution doesn’t add — it compounds
The intuitive mistake is to think “I’ll give 20% at Seed, 20% at A, 20% at B — so I’ll have 40% left.” That’s not how it works. Each round dilutes what you owned after the last one, so the math is multiplicative, not additive: 0.8 × 0.8 × 0.8 ≈ 0.51, before you even count the option pools.
That single fact changes how you raise. The cost of a round isn’t the slice you give this time — it’s that slice multiplied through every round still ahead of you.
Pools stack on top
Each priced round often comes with a fresh option pool, created pre-money — the shuffle from the last lesson. So a round can dilute you twice: once for the new investor, once for the new pool. Across three rounds those pools compound right alongside the investment.
Raise on purpose
None of this means raise less — capital you need to win is worth the dilution. It means raise deliberately: know what each round does to your stake three rounds out, and weigh a bigger cheque against a smaller one with the actual numbers in front of you, not a gut feeling.
Now model your plan
Set your starting shares and a Seed → Series A → Series B plan. Watch your stake compound down at each step, and read the final cap table. Change a cheque or a pool and see three rounds out shift at once. When it looks like your plan, keep it — the final cap table is saved to your workspace.
Model your financing plan
| Round | Pre-money (₹) | Investment (₹) | New pool (%) |
|---|---|---|---|
| Seed | |||
| Series A | |||
| Series B |
Your stake, round after round
Dilution compounds: each round keeps a fraction of the last, so what you own at the end is every round multiplied together — here, 44.8% after the plan above. Raising more at a higher price isn’t free; it’s a trade you should make on purpose.
| Holder (final) | Shares | Owns |
|---|---|---|
| Founders | 1,000,000 | 44.8% |
| ESOP pool | 142,857 | 6.4% |
| Seed | 285,714 | 12.8% |
| Series A | 357,143 | 16.0% |
| Series B | 446,429 | 20.0% |