See how creating or expanding an employee option pool dilutes existing shareholders. Enter shares outstanding and new ESOP pool % to get post-ESOP fully diluted shares and dilution %.
ESOP Pool Parameters
Enter current fully diluted shares and the new ESOP pool size to see dilution impact on existing shareholders
Understanding the Inputs
Key components for ESOP dilution calculation
Shares Outstanding (Fully Diluted)
Total shares that exist today including all issued common, preferred (as converted), and any already reserved or granted options.
Common + preferred (as-converted)
Existing option pool (reserved + granted)
Use cap table fully diluted count
New ESOP Pool %
The size of the new or top-up option pool as a percentage of the company after the pool is created (post-pool fully diluted).
New Pool Shares = Post-ESOP Shares − Shares Outstanding
The new pool is created by increasing total shares so that the pool represents the target percentage of the enlarged total. Existing shareholders are diluted proportionally.
An Employee Stock Option Plan (ESOP) reserves a percentage of the company’s equity for employees. When you create a new pool or top up an existing one, you increase the total number of shares (fully diluted). Existing shareholders—founders, investors, and prior option holders—are diluted because their share count stays the same while the denominator (total shares) increases.
Why Companies Create or Top Up Pools
Companies add or expand option pools to hire key employees, retain talent with equity, and align incentives. Pools are often created or increased at funding rounds (pre-money), so the dilution is borne by pre-round shareholders, and the new investor gets a post-money percentage that already includes the pool.
Who Is Diluted?
All existing shareholders are diluted proportionally when a new pool is created:
Founders: Ownership percentage drops; share count stays the same.
Prior investors: Same effect—same shares, smaller slice of a larger pie.
Existing option holders: Already-granted options are diluted unless the plan explicitly protects them (rare).
The ESOP Dilution Formula and Components
If the new pool is to be P% of the company after the pool is in place (post-pool fully diluted), then:
New pool shares = Post-ESOP shares − Shares outstanding. The dilution to existing shareholders equals P% (each existing holder’s ownership percentage drops by that amount in relative terms).
Defining Shares Outstanding (Fully Diluted)
Use the fully diluted share count before the new pool:
Common stock (issued and outstanding).
Preferred stock (as-converted to common).
Existing option pool (reserved + granted, if already in the cap table).
SAFEs and convertible notes (as-converted at the round, if applicable).
Interpreting Dilution and Pool Size
Typical pool sizes: 5–10% at seed, 10–15% at Series A, and 10–15% refreshes at later stages. A 10% pool means 10% dilution to existing shareholders.
Stage Benchmarks
Seed: Often 10–15% to cover early hires and advisors.
Series A: 15–20% post-money is common; investors may require it in the term sheet.
Growth stage: Refreshes of 10–15% over time; avoid one very large pool that over-dilutes.
Too Small vs Too Large
Balance pool size against multi-year hiring and retention: too small and you run out of options and must top up (causing another round of dilution); too large and you over-dilute existing shareholders and may signal misalignment with investors.
Pre-Money vs Post-Money Option Pool
When the pool is pre-money, it is created before the new investment. Founders and prior investors are diluted; the new investor’s percentage is calculated on the post-money cap table that already includes the pool.
Pre-Money Pool (Standard)
In most venture rounds the option pool is created or topped up pre-money. The new investor receives a percentage of the company after the pool is in place, so the investor is not diluted by the pool—founders and prior holders are.
Post-Money Pool
When the pool is post-money, the new investor is diluted too. Post-money pools are less common; term sheets usually specify pre-money pool treatment.
Role in Fundraising and Cap Table
Investors often require a sufficient option pool (e.g. 10% post-money) before closing. Use this calculator to see the dilution impact of that requirement.
Term Sheet and Cap Table
When negotiating a round, model the requested pool size to see founder and existing-shareholder dilution. For multiple rounds, SAFEs, and convertible notes, use a full cap table to track cumulative dilution over time.
Best Practice
Size the pool to support 18–24 months of hiring and key retention grants. Document allocation and vesting policy so investors and employees understand how the pool will be used.
Conclusion
ESOP dilution is the direct reduction in ownership percentage for existing shareholders when a new option pool is created or increased. Use the formula and this calculator to quantify the impact before a round or when planning a pool top-up.
Size the pool to support hiring and retention while keeping cumulative dilution in line with stage benchmarks and investor expectations. For multiple rounds and complex cap tables, pair this tool with a full cap table or multi-round dilution calculator.
Frequently Asked Questions
Common questions about ESOP dilution
What is ESOP dilution?
ESOP dilution is the reduction in ownership percentage for existing shareholders when a new employee stock option pool is created or increased. New shares are added so that the pool represents a target percentage of the company; existing holders keep the same number of shares but a smaller percentage of the total.
How do I calculate ESOP dilution?
Post-ESOP fully diluted shares = Current shares ÷ (1 − Pool %). New pool shares = Post-ESOP shares − Current shares. The dilution to existing shareholders equals the pool percentage (e.g. a 10% pool causes 10% relative dilution to existing holders).
What is a typical ESOP pool size?
Seed rounds often use 10–15%, Series A 15–20%, and growth stage 10–15% for refreshes. Benchmarks vary by geography and sector; investors frequently require a minimum pool (e.g. 10% post-money) at the round.
Is the option pool pre-money or post-money?
In most venture rounds the pool is created or topped up pre-money, so founders and existing investors are diluted and the new investor’s percentage is calculated on a cap table that already includes the pool. Post-money pools dilute the new investor as well.
How does ESOP dilution affect founders?
Founders are diluted along with other existing shareholders. A 10% pre-money pool reduces each founder’s ownership percentage by 10% in relative terms (e.g. from 50% to 45% of the larger total). Cumulative dilution from multiple rounds and pools should be modeled in a cap table.
Usage of this Calculator
Practical applications
Who Should Use This Calculator?
FoundersTo see how a new or larger option pool dilutes your ownership before a round.
InvestorsTo check pool size and dilution impact when negotiating term sheets.
HR / PeopleTo align pool size with hiring and retention plans.
Startup AdvisorsTo explain dilution and pool sizing to founders and boards.
Limitations
This calculator models a single pool creation/top-up. For multiple rounds and SAFEs, use a full cap table.
Vesting and exercise timing are not included; only fully diluted ownership impact is shown.
Summary
The ESOP Dilution Impact Calculator shows how creating or increasing an employee option pool dilutes existing shareholders.
Use it to size the pool and understand ownership impact before a funding round or when planning hiring and retention.
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See how creating or expanding an employee option pool dilutes existing shareholders. Enter shares outstanding and new ESOP pool % to get post-ESOP fully diluted shares and dilution %.
How to use ESOP Dilution Impact Calculator
Step-by-step guide to using the ESOP Dilution Impact Calculator:
Enter your values. Input the required values in the calculator form
Calculate. The calculator will automatically compute and display your results
Review results. Review the calculated results and any additional information provided
Frequently asked questions
How do I use the ESOP Dilution Impact Calculator?
Simply enter your values in the input fields and the calculator will automatically compute the results. The ESOP Dilution Impact Calculator is designed to be user-friendly and provide instant calculations.
Is the ESOP Dilution Impact Calculator free to use?
Yes, the ESOP Dilution Impact Calculator is completely free to use. No registration or payment is required.
Can I use this calculator on mobile devices?
Yes, the ESOP Dilution Impact Calculator is fully responsive and works perfectly on mobile phones, tablets, and desktop computers.
Are the results from ESOP Dilution Impact Calculator accurate?
Yes, our calculators use standard formulas and are regularly tested for accuracy. However, results should be used for informational purposes and not as a substitute for professional advice.