Equity dilution: what it is, with a three-round example

Equity dilution is what happens to your percentage when the company issues new shares (or new quote, in an SRL) to someone else: it goes down. You still hold exactly what you held. There are simply more shares in total, so your slice gets thinner, and if the round is priced well it’s also worth more.

First the maths, across three rounds in euro. Then the option pool trick that catches first-time founders, and what the Civil Code says about capital increases in an Italian SRL. If rounds and valuations are new to you, our map from zero to a first round puts them in order.

How equity dilution works: an example across three rounds

The arithmetic fits on one line. The new investor’s share is the amount raised divided by the post-money valuation, which is the pre-money plus the new cash. Everyone else gives up that same percentage of what they own.

Say two founders in Bologna own 100% of their SRL and raise three rounds.

Round	Pre-money	Raised	Post-money	Founders’ stake	Worth on paper
Pre-seed	€1.2M	€0.3M	€1.5M	80%	€1.2M
Seed	€6M	€1.5M	€7.5M	64%	€4.8M
Series A	€20M	€5M	€25M	51.2%	€12.8M

Every round sells exactly 20%, which means the founders come out of each one holding 80% of what they had going in. Eighty percent of 80% gives you 64%. Take 80% of that and you’re at 51.2%. So the percentage nearly halves, while the stake’s paper value grows more than tenfold, from €1.2 million to €12.8 million. A smaller slice of a much bigger company: that’s dilution working as intended. A down round, priced below the previous one, is where it bites, because you lose percentage and value at the same time.

To test your own rounds, use the cap table simulator in our Investor-Ready Kit (€149).

How much dilution is normal per round?

Roughly what the example shows, if you go by Carta. Its benchmark covers more than 1,000 software rounds raised in the six months before July 2026, and its median seed round diluted existing holders by 18% (on $4.1 million raised). Series A? Also 18%, on $14.4 million. After that the slices get smaller: 12% at Series B, 8% at Series D.

Pre-seed is messier. The money often arrives as SAFEs or convertible notes that turn into equity only later, and Carta counted 50,316 of them on its US platform in 2025. What drives your dilution there is the cap. For rounds of $250,000 to $1 million, the median post-money cap on a SAFE hovered around $10 million. Between $1 million and $2.5 million it was about $15 million. So if you raise $1.5 million on a SAFE capped at $15 million post-money, the investors end up with 10% of the company (1.5 divided by 15).

Those percentages stack from one round to the next, and our guide on how much equity to give away at pre-seed and seed does the cumulative maths for you.

The option pool shuffle

Seed investors often want a pool of options for future hires in place before they invest. Who pays for it? It comes down to where the pool sits. Take the seed round above and add a pool worth 10% of the post-money, carved out of the €6 million pre-money. The investor still gets 20%. The pool takes 10%. Founders and the pre-seed investor share the other 70%, so the founders end at 56% instead of 64%.

Put another way, the headline says €6 million, but the people already on the cap table are being valued at €5.25 million. Venture Hacks called this the option pool shuffle back in 2007: because the pool comes out of the pre-money, it dilutes only the existing holders and never the new investor. In an SRL the pool is often a capital increase reserved for an incentive plan rather than a block of options, and the arithmetic doesn’t change. Our article on how big an option pool should be and who pays for it covers the negotiation.

Dilution in an Italian SRL: premium and pre-emption rights

In an SRL a round is a capital increase. The investor subscribes new quote at their nominal value plus a share premium, the sovrapprezzo, which Borsa Italiana defines as the difference between the subscription price and the nominal value. That premium goes into an equity reserve. Say an SRL with €10,000 of capital sells 20% for €1.5 million. The new quote have a nominal value of €2,500, since 2,500 out of 12,500 is 20%. The other €1,497,500 is premium. At subscription the investor pays at least 25% of the nominal part plus the whole premium.

Who gets first call on the new quote? The partners already there. Article 2481-bis of the Civil Code gives them the right to subscribe in proportion to their stake, with at least 30 days to decide. Subscribe your share and your percentage doesn’t move. You just have to pay for it. The atto costitutivo can let the company offer the increase to outsiders instead (though not when capital is being rebuilt after losses push it below the legal minimum). If it does, partners who didn’t consent to the decision can withdraw.

So before a round, existing partners either waive their right or rely on that clause. Gianni & Origoni note that pre-emptive rights ‘if not waived, may complicate new investments’. Our guide to a capital increase in an Italian SRL walks through the notarial deed step by step.

Anti-dilution clauses are a different animal. They protect an investor’s price if a later round comes in cheaper: see full ratchet vs weighted average.

Related terms

• It’s your equity in the startup that gets diluted, whether it’s held as quote in an SRL or azioni in an SpA.
• Raising a seed round next? Carta’s median there is 18% dilution, on $4.1 million raised.
• A new round shrinks vested and unvested shares alike. Who gets to keep them is a separate question, and it’s answered by the vesting schedule.
• If ‘fully diluted’ still sounds like jargon, our startup glossary explains it, along with pre-money and post-money.

This page is general information, not legal or tax advice. Rules change: check the official source or ask a professional before you act.