Cap table & dilution
Fully diluted
A share count that includes everything capable of becoming a share — issued shares, all options whether granted or merely reserved, warrants, and every outstanding convertible instrument.
In plain English
Fully diluted is the only honest basis on which to state ownership, because it counts the claims on the company rather than just the paperwork that has been completed. A company with 1,000,000 shares issued, a 200,000-share option pool and $1m of SAFEs outstanding does not have 1,000,000 shares in any meaningful sense.
The components are: issued and outstanding shares of every class; options granted and not yet exercised; options reserved in the pool and not yet granted; warrants, typically from venture debt or as sweeteners; and convertible instruments — SAFEs, notes and ASAs — modelled at their conversion terms.
The last of these is where practice diverges. Convertibles do not have a fixed share count until they convert, because the number depends on the price of a round that has not happened. Some cap tables therefore exclude them, which is defensible bookkeeping and misleading economics. The right treatment is to model them at the expected round price and show the result explicitly.
Percentages quoted on a non-fully-diluted basis are always higher and always flattering. When a founder tells you a number, the useful follow-up is one word: "diluted?"
What it means for your cheque
Insist on fully diluted for everything: your percentage, the founders' percentage, and the price per share in any priced round. A price calculated on issued shares alone is a lower price per share and therefore more shares for the investor — which sounds good until you realise the same treatment applies to whoever comes next.
The practical test for whether a company has a real grip on this is to ask for the fully diluted count with the convertibles modelled at a stated assumed round price. Founders who can produce it in a day are running a tight ship. Founders who have never done it will often discover something uncomfortable in the process, and you will both be better informed.
Do the arithmetic
The same stake on three different denominators
You hold 50,000 shares. The company has 1,000,000 shares issued, a 200,000-share option pool of which 120,000 is granted, and $800,000 of SAFEs that will convert into roughly 180,000 shares.
| Issued shares only | 50,000 ÷ 1,000,000 = 5.00% |
|---|---|
| Including granted options | 50,000 ÷ 1,120,000 = 4.46% |
| Including the whole pool | 50,000 ÷ 1,200,000 = 4.17% |
| Fully diluted with SAFEs modelled | 50,000 ÷ 1,380,000 = 3.62% |
| Difference between the best and worst framing | 1.38 percentage points, or 28% of your position |
All four numbers are arithmetically correct and only the last one is useful. When someone quotes a percentage without specifying the basis, they have not given you information.
At the table
What to negotiate
- Specify "fully diluted, including the unissued pool and all outstanding convertibles" whenever a percentage is discussed.
- For a priced round, confirm the price per share was calculated on the fully diluted count — this is what determines what your money buys.
- Ask for the assumed conversion price used to model outstanding convertibles, and sanity-check it.
- Check whether warrants exist. Venture debt facilities issue them routinely and they are easy to leave off a spreadsheet.
- Ask about promised-but-ungranted equity to advisers, which appears on no schedule and is real all the same.
Fully diluted: common questions
Should the unissued option pool be counted?
How are SAFEs counted when their conversion price is unknown?
Why do founders quote non-diluted percentages?
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