How to Calculate the Worth of Dilution

Dilution Worth Formula:

\[ \text{Value} = \frac{\text{Shares}_{\text{new}}}{\text{Shares}_{\text{total}}} \times \text{Company Value} \]

Dilution Worth:

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1. What is Equity Dilution Worth?

The dilution worth represents the value of newly issued shares in relation to the company's total valuation. It calculates how much the new shares are worth based on the company's current valuation and the proportion of ownership they represent.

2. How Does the Calculator Work?

The calculator uses the dilution worth formula:

\[ \text{Value} = \frac{\text{Shares}_{\text{new}}}{\text{Shares}_{\text{total}}} \times \text{Company Value} \]

Where:

\( \text{Shares}_{\text{new}} \) — Number of new shares being issued
\( \text{Shares}_{\text{total}} \) — Total number of shares after issuance (existing shares + new shares)
\( \text{Company Value} \) — Current valuation of the company in dollars

Explanation: The formula calculates what percentage of the company the new shares represent, then applies that percentage to the company's total valuation to determine their monetary worth.

3. Importance of Calculating Dilution Worth

Details: Understanding dilution worth is crucial for founders, investors, and employees when evaluating equity offerings, funding rounds, or stock option grants. It helps assess how much new shares are worth and what percentage of the company they represent.

4. Using the Calculator

Tips: Enter the number of new shares being issued, the total number of shares after issuance (existing + new), and the company's current valuation. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between pre-money and post-money valuation?
A: Pre-money is company value before investment, post-money is value after investment (pre-money + investment amount).

Q2: How does dilution affect existing shareholders?
A: Dilution reduces each existing shareholder's percentage ownership, though the actual value may increase if the company valuation grows sufficiently.

Q3: What's a typical dilution percentage in funding rounds?
A: Early rounds often dilute 15-25% per round, decreasing in later stages. The exact amount depends on investment size and valuation.

Q4: How can I calculate my ownership percentage after dilution?
A: Divide your number of shares by the total shares outstanding after the new issuance.

Q5: Are there ways to prevent dilution?
A: Existing shareholders can participate in funding rounds (pro-rata rights) or negotiate anti-dilution provisions, but some dilution is normal in growing companies.