Cap Tables and Dilution, Worked Through

The core identity: pre, post and the share sold

Every priced round rests on one identity. Post-money valuation equals pre-money valuation plus the new money. The new investors' ownership equals the new money divided by the post-money valuation.

Take a seed round of 3 million dollars at a 12 million dollar pre-money valuation. Post-money is 15 million. The new investors own 3 divided by 15, or 20 percent, and everyone who held the company before the round now holds 80 percent of what they held — a founder with 60 percent goes to 48 percent. Nothing about the founder's share count changed; the company issued new shares and the founder's slice of a bigger pie got smaller, ideally while becoming worth more.

For a sense of scale in 2026: the PitchBook-NVCA Venture Monitor reports a median seed round of about 3.0 million dollars and a median seed pre-money of about 18.3 million, and a median Series A of about 17.4 million on a median pre-money of about 60.3 million. Dividing medians is not the same as the median dilution, so treat this as an order of magnitude rather than a statistic, but it implies something like 14 percent sold at seed and 22 percent at Series A. Compound two or three rounds of that size with an option pool and, as the full example at the end of this lesson shows, founders can reach roughly half the company or less surprisingly quickly. That is the normal cost of venture capital, and the reason to raise only what the next milestone needs.

The option pool, and where it sits

Investors usually require the company to set aside shares for future employees. The question that matters is whether that pool is created before or after the investors' price is applied.

If the pool is included in the pre-money valuation, its dilution falls entirely on the existing holders. Rework the example: a 12 million dollar pre-money that must include a new pool equal to 10 percent of the post-money company. The investors still buy 20 percent for 3 million. But 10 percent of the post-money company is now reserved for the pool, carved out of the pre-money holders' 80 percent — so the founders and earlier investors together hold 70 percent rather than 80. Their effective pre-money, the value of what they keep, is 10.5 million dollars, not 12.

This is not sharp practice; a pool sized for the hiring the new money will pay for is reasonable. But the size is negotiable. Gompers and his co-authors found in their 2016 survey that venture capitalists describe themselves as relatively flexible on the option pool, compared with terms like liquidation preference or pro rata rights. Ask for a hiring plan that justifies the size, and size the pool to that plan rather than to a round number.

Adding up post-money SAFEs

The reason Y Combinator moved to the post-money SAFE in 2018 was to make this arithmetic possible. With a post-money valuation cap, the ownership a SAFE buys is the investment divided by the cap, measured after all the SAFE money but before the next priced round.

YC's own example: a founder targeting 1 million dollars for 15 percent sets a post-money cap of about 6.7 million. Raising 500,000 dollars sells about 7.5 percent; 800,000 sells about 12 percent; the full 1 million sells about 15 percent. With two caps — 500,000 at a 5.5 million cap and 500,000 at an 8.3 million cap — the founder sells about 9 percent plus about 6 percent, roughly 15 percent in all.

Two properties follow from the definition. SAFEs on post-money caps do not dilute one another, so each investor's percentage is fixed when they sign. And they are all diluted, together with the founders, by the next priced round's new money and by any option-pool increase adopted in that round. The guide warns of one more case: if the next round prices below or close to the cap, the SAFEs can convert into more than the estimate. Keep a running total of every SAFE and its cap; that total is the most important number on an early cap table.

A full conversion: SAFEs into a Series A

YC's user guide works one complete case, and it is worth following line by line because it combines everything above.

Before the Series A, the company sold 15 percent in SAFEs — 750,000 dollars at a 5 million dollar post-money cap — and gave every SAFE holder the optional pro rata side letter. It then granted options equal to 8 percent of the company to people hired before the A. The Series A assumptions are that new investors will own 25 percent after the round, before the SAFE holders' pro rata, and that the round creates an unissued option pool of 10 percent.

The SAFE holders' pro rata allocation is 25 percent divided by (100 percent minus 15 percent), minus 25 percent — about 4.41 percent. So the Series A's investments total about 29.41 percent, and with the 10 percent pool the Series A dilution is about 39.41 percent. The SAFEs, converted, hold 15 percent of what remains: about 9.09 percent. The earlier options hold 8 percent of what remains after that: about 4.12 percent. Total dilution is about 52.62 percent, leaving the founders roughly 47.4 percent of a company they owned outright before the SAFEs.

Notice what drove it. The SAFEs were 15 percent, but the pro rata rights, the pre-A options and the new pool together cost more than the SAFEs did. This is why a founder should model the next round when signing the current one — and why investors' pro rata rights, a term Lesson 4.3 returns to, are worth understanding before they are granted.