Frequently Asked Questions
What is the difference between Pre-Money and Post-Money Valuation?
Pre-money valuation is the agreed-upon value of your startup before receiving any new investment capital. Post-money valuation is simply the pre-money valuation plus the new investment amount. For example, if investors agree your company is worth $4M (pre-money) and they invest $1M, your post-money valuation becomes $5M. Your investors will own 20% of the company ($1M / $5M).
What is an ESOP and why does it dilute existing founders?
An Employee Stock Ownership Plan (ESOP) or Option Pool is a reserve of equity set aside for future hires, advisors, and consultants. New investors typically require the ESOP to be created or expanded before their investment (pre-money). This means the dilution required to create the pool is borne entirely by the existing shareholders (the founders) rather than the new investors.
How do Convertible Notes and SAFEs affect my cap table?
Convertible notes and SAFEs (Simple Agreement for Future Equity) are instruments that convert into equity during a priced round (like a Seed or Series A). They usually convert at a discount to the new round's share price or at a predefined valuation cap, whichever gives the early investors a lower price per share. When they convert, they create additional shares that dilute the founders.
What is a good founder ownership percentage after a Seed round?
Typically, founders aim to retain between 60% and 80% of the company collectively after a Seed round. This depends heavily on the size of the round, the size of the ESOP pool created, and whether any prior convertible notes are converting. Falling below 50% ownership too early can pose significant risks for future fundraising rounds, as investors want founders to remain highly incentivized.
Why do different business categories have different ESOP benchmarks?
Different industries require different talent compensation structures. A Deep Tech or AI startup often needs to attract highly specialized, expensive engineers and researchers, requiring a larger equity pool (typically 15-20%). Conversely, an E-commerce, Agency, or Service business might rely more on cash compensation and require a smaller option pool (5-10%).
What is a Valuation Cap in a SAFE or Convertible Note?
A valuation cap is a protective provision for early investors. It sets a maximum effective valuation at which their investment will convert into equity. If your startup's valuation skyrockets in a later priced round (e.g., $20M), but the early investor had a $5M cap, their shares convert as if the company was only worth $5M, granting them significantly more equity and protecting them from excessive dilution.
What is a Discount Rate in early-stage investing?
A discount rate is another provision in a convertible note or SAFE that rewards early investors for taking on more risk. It allows them to convert their investment into equity at a lower price per share than the new investors in a priced round. A standard discount rate is typically between 15% and 20%.
How can I protect my control as a founder during fundraising?
Founders can protect their control through various legal and structural mechanisms. These include implementing dual-class stock structures (where founder shares have super-voting rights, e.g., 10 votes per share), drafting specific voting agreements, maintaining a board majority, and simply maintaining a significant equity stake. It is crucial to negotiate these terms early and consult with experienced startup legal counsel.
Can I use this calculator for later funding rounds like Series B or C?
This tool is primarily designed for Seed and early-stage rounds. For later rounds (Series A, B, C, etc.), cap tables become significantly more complex. They often involve multiple classes of preferred stock, complex liquidation preferences, participating preferred rights, and broad-based weighted average anti-dilution provisions that require professional, dedicated cap table management software.
Is my financial data stored, shared, or tracked?
Absolutely not. The Angel Equity Dilution Tool is designed with privacy first. It runs entirely locally in your web browser. We do not collect, store, transmit, or analyze any of the financial numbers, valuations, or cap table structures you input into the calculator.