# Startup Dilution Explained: What Founders Own After a Funding Round

> Learn pre-money versus post-money valuation, calculate investor ownership, and understand why the legal cap table may show more dilution than the headline round.

- URL: https://www.pyalm.com/blog/startup-funding-dilution-guide
- Author: Fadhil Abdulla
- Category: Founder Guides
- Published: 2026-07-19
- Updated: 2026-07-19

---

Fundraising changes two things at once: the company receives cash, and the existing shareholders own a smaller percentage of a more valuable company. That second change is dilution.

## Start with pre-money and post-money valuation

The **pre-money valuation** is the agreed value of the company immediately before the new investment. The **post-money valuation** adds the new cash:

`Post-money valuation = pre-money valuation + investment`

If a startup agrees a pre-money value of AED 5 million and raises AED 1 million, its post-money value is AED 6 million.

## Calculate the new investor's ownership

The investor's headline ownership is:

`Investment ÷ post-money valuation`

In the example, AED 1 million divided by AED 6 million is 16.67%. Existing shareholders collectively retain 83.33%.

If the founders owned 80% before the round, their combined ownership becomes 80% × 83.33%, or about 66.67%. The remaining pre-round shareholders are diluted by the same proportion.

Try your own scenario in the free [Funding Dilution Calculator](https://www.pyalm.com/free-tools/funding-dilution-calculator).

## Percentage down does not automatically mean value down

Before the round, an 80% founder stake at a AED 5 million valuation has an implied value of AED 4 million. Immediately after the simple round above, a 66.67% stake at AED 6 million also has an implied value of roughly AED 4 million. The founder owns a smaller slice, but the company now has new capital to pursue growth.

The economic outcome depends on what the team achieves with that capital, not only on the percentage surrendered.

## Why the real cap table may differ

A headline calculation is only the first layer. Actual dilution can also come from:

- A new employee option pool created before the investment
- SAFEs or convertible notes converting in the round
- Warrants or existing ungranted options
- Different share classes and negotiated rights
- Fees or secondary share sales

An option pool created **pre-money** is especially important because existing holders usually absorb that dilution before the new investor's percentage is calculated.

## Run three scenarios before negotiating

Model a conservative, target, and ambitious round. For each one, record the cash raised, runway created, milestones the cash should fund, post-round founder ownership, and the likely size of the next round. A funding decision is stronger when ownership and operating runway are reviewed together.

The calculator is a planning aid, not legal or investment advice. Use a complete cap table and review the final financing documents with qualified advisers before signing.