The formula
Final stake = stake × pre-money ÷ post-money
What it means
When new money comes in, new shares are issued, so yours become a smaller part of a larger whole. The post-money valuation is simply the pre-money plus what comes in, and the investor takes the share their money represents of that total. Your percentage gets multiplied by the ratio of pre to post, and that is all the arithmetic there is.
How to work it out by hand
- Add the pre-money valuation and the money coming in: that is the post-money
- Divide the investment by the post-money: that is the investor's share
- Divide pre by post: that is your dilution factor
- Multiply your stake by that factor
What is worth knowing
Losing percentage and losing value are different things: if the valuation rises more than your percentage falls, your share is worth more than before, and that is the point of raising a round. What this calculation does not capture is the rest of the term sheet: the employee option pool usually comes out of the pre-money and dilutes only the founders, and liquidation preferences can make a bigger percentage worth less in a sale. The percentage is the easy part.