Valuation, equity and dilution explained
These decide how much of your company you give up in return for investment. This section explains 11 of them in plain English. Jump to the calculator to try it with your own numbers.
Section 2 of 10
11 terms explained
Valuation
What the company is worth, as estimated or agreed with an investor. At an early stage it is a negotiated number, not the result of a formula.
Pre-money valuation
The company's agreed value just before the new money goes in.
Post-money valuation
The value just after the investment. In a simple priced round it is the pre-money valuation plus the new money.
Equity
Ownership of a company, held as shares. Raising equity means selling part of the company.
Dilution
The fall in an existing shareholder's percentage when the company issues new shares. You keep the same number of shares, but they are a smaller slice.
Cap table
Capitalisation table
The record of who owns what: every shareholder, their shares and percentage, plus options and convertibles where they apply.
ESOP
Employee stock option plan
A plan that lets employees earn the right to buy shares, usually from an option pool. In the UK, the tax-advantaged scheme for smaller companies is EMI.
SAFE
Simple agreement for future equity
The investor pays now for the right to shares later, usually at the next priced round. A standard SAFE puts SEIS and EIS relief at risk, so UK angels usually use an advance subscription agreement instead.
CLN
Convertible loan note
A loan that turns into shares under agreed conditions, usually at the next funding round and often at a discount, instead of being repaid in cash.
CCPS
Compulsorily convertible preference shares
Preference shares that must convert into another class of share on agreed terms. You will see them in some countries, including India.
FD
Fully diluted
Ownership counted as if every option and convertible had already become shares, using the definition in the deal documents.
Try it with your numbers
Valuation and dilution calculator, with ASA, SAFE or loan note conversion
It starts on the worked example above. Add an option pool top-up or money converting from an ASA, SAFE or convertible loan note and see who owns what. For several named shareholders, use the full dilution calculator.
Who owns what after the round
80.0%
for founders and existing shareholders, down from 100.0% before the round
- Founders and existing shareholders80.0%
- New investor20.0%
- Post-money valuation
- £1,000,000
- Price per share
- £0.80
- New investor's share
- 20.0%
- Shares after the round
- 1,250,000
Cap table after the round
| Holder | Shares | Share |
|---|---|---|
| Founders and existing shareholders | 1,000,000 | 80.00% |
| New investor | 250,000 | 20.00% |
| Total | 1,250,000 | 100.00% |
Conversion shares are issued at completion alongside the investor's, so they dilute everyone. Some term sheets count them in the pre-money instead, which moves that dilution onto existing shareholders. Check what yours says.
Last checked . Estimates only, not financial, tax or legal advice: deal terms vary, so check your documents and take advice before you sign. More terms in the startup glossary.