Phase 1 · Core Sovereign Layer
Equity Dilution & Stock-Option Calculator
That option grant looks life-changing — until dilution and the strike price take their cut. Model your real payout at exit across every funding round between now and the door.
How do you calculate equity dilution?
Your share count never changes — your percentage does. Take current ownership = your shares ÷ fully-diluted shares, then multiply by the dilution factor = (1 − dilution per round) ^ number of rounds. Two rounds at 20% each leave 0.8 × 0.8 = 64% of your original stake, so a 0.25% holding becomes 0.16%.
- Dilution compounds rather than adds: two 20% rounds cost 1 − (0.8 × 0.8) = 36% of your stake, not 40%.
- Always measure against the fully-diluted share count — common, preferred, options and warrants combined. The same 25,000 shares is 0.25% of 10M shares but only 0.05% of 50M.
- Priced rounds typically dilute existing holders by roughly 15–25% each.
- Payout at exit = final ownership × exit valuation − (your shares × strike price). If the exit price per share is below your strike, the options are underwater and worth nothing.
Under the hood
The math, fully exposed
Your share count is fixed; dilution shrinks your percentage round by round. Every figure comes from these formulas:
Current ownership = your shares ÷ fully-diluted shares
Dilution factor = (1 − dilution per round) ^ rounds
Final ownership = current ownership × dilution factor
Gross value = final ownership × exit valuation
Exercise cost = your shares × strike price
Net payout = gross value − exercise cost
- Dilution compounds: two 20% rounds don't cost you 40% — they cost 1 − (0.8 × 0.8) = 36%, but the order-of-magnitude lesson holds: each round quietly carves off a slice before you ever see liquidity.
- Strike is a real cost: exercising isn't free. Your gross is only payout if the exit price per share clears your strike — otherwise the options are underwater and worth nothing.
- Percentage beats share count: a big-sounding share grant means little without the fully-diluted total. The same 25,000 shares is 0.25% of 10M shares but only 0.05% of 50M.
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Answers
Frequently asked questions
What is dilution and how does it affect my stock options?
Each time a company raises a funding round it issues new shares, so the total grows and your fixed grant becomes a smaller percentage of the company. If you own 0.25% and the company runs two rounds that each dilute existing holders by 20%, your stake falls to 0.25% × 0.8 × 0.8 = 0.16%. Your share count never changes — your slice of the pie shrinks.
What does it mean for stock options to be "underwater"?
Options are underwater when the exit price per share is below your strike price — the price you must pay to exercise. In that case exercising would cost more than the shares are worth, so the options are worthless until the share price recovers above the strike.
How is my ownership percentage calculated?
Ownership = your granted shares ÷ the company's fully-diluted share count (all common, preferred, options and warrants combined). Always ask for the fully-diluted number — a percentage quoted against only common stock overstates what you actually own.
Should I exercise my options early?
It depends on strike cost, your conviction in the company, and tax exposure — early exercise of ISOs can trigger the Alternative Minimum Tax (AMT) on the paper gain. This tool sizes the upside, but exercise and tax timing are decisions to make with a qualified advisor, not a calculator.