StructuringFundraising Strategy
How Much Should You Raise? The Complete Guide to Startup Fundraising in 2025
Learn how to calculate your raise amount, choose between SAFEs and priced rounds, and navigate term sheets strategically.
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This guide walks you through how to set the terms of your raise by forecasting dilution and planning ahead.
Mark Bugas
Minimizing dilution while raising enough capital requires strategic balance between preserving ownership and securing sufficient runway to reach meaningful milestones, understanding that attempting to minimize dilution by under-raising often creates more total dilution through multiple desperate rounds than raising adequately once at fair terms. Dilution averaging 10-20% per equity round is normal and necessary for growth, representing the cost of accessing capital that increases your company's total value even though your percentage ownership decreases. Owning 5% of a $500M company generates the same return for you as a founder versus owning 50% of a $50M company.
The strategic approach to managing dilution starts with determining precisely how much capital you need to reach your next major milestone plus 20-30% buffer for unexpected challenges, typically targeting 18-24 months of runway providing adequate time to execute without forcing premature next rounds. Calculate your post-money valuation based on market comparables for companies at your stage and traction level, understanding that higher pre-money valuations create less dilution for the same capital raised but only matter if you can maintain upward trajectory in future rounds. Model dilution across multiple future rounds forecasting your ownership at various exit scenarios, ensuring you'll retain sufficient equity (typically 10-20% at exit for founding CEOs) to make the journey worthwhile even after several rounds of institutional financing.
Alternative approaches to reducing dilution include exploring debt financing, revenue-based financing, or convertible instruments that defer dilution to later rounds at potentially better valuations, though these options have their own costs and limitations. However, the most important dilution management strategy is achieving capital efficiency between rounds by executing well, hitting milestones, and demonstrating strong unit economics, which allows you to raise future rounds at significantly higher valuations where the same dollar amount creates less dilution. Founders who obsess over minimizing dilution in their current round often make poor decisions like under-raising, accepting capital from wrong investors, or optimizing for maximum valuation that creates unsustainable expectations, all of which ultimately create worse long-term dilution outcomes than simply raising appropriate capital at fair terms from right investors.
Before you forecast dilution, you need to determine how much capital your business actually needs to get to the next milestone (typically a growth target that will enable you to raise another round). When determining capital needs, you should take into account the resources needed to reach the next milestone, including headcount, systems costs, marketing, etc. and the monthly cash burn required for these expenses.
We always recommend including additional buffer. So if you believe you can reach the next milestone in one year with $120k in cash, burning $10k per month, consider raising more than $120k in case your expenses are higher, your growth is slower, or it takes longer to raise the next round. Generally speaking, you want to secure at least a year in runway, though it’s better to have the optionality of 18 - 24 months of runway.
We recommend building a multi-round operating model to forecast revenue and expenses using the proceeds of the raise and future raises, even though those variables and inputs will change dramatically over time. From there, you can use sensitivity analysis to tweak assumptions and test their impact on outputs like runway and burn, and adjust the model.
Pre-money valuation is your company’s enterprise value prior to taking on investment, whereas post-money includes the investment itself. The higher the pre-money valuation, the less dilution the existing shareholders will experience.
There is no silver bullet for setting your valuation - at the earliest stages, before revenue multiples are relevant, valuations are likely to be determined by what the market is “demanding”, in addition to factors including your geography, industry, and business model. If you’re a pre-revenue company in a down-market, the reality is you’ll almost certainly have to raise at a lower valuation than you would be able to in good times unless you have exceptional proof of concept, experience, a proven track-record, or some other competitive advantage that investors can hang their hat on. In a bear market, it may make sense to bootstrap until you generate revenue and de-risk the business model enough to raise at a higher valuation. The final valuation you settle on will almost certainly be determined by supply-and-demand (e.g. what investors are willing to give), but you should establish your target before initiating investor discussions.
To project how much dilution you’ll take on, first calculate how much of the company you’re giving away by dividing the investment (”money in”) by your post-money valuation (pre-money valuation + investment). From there, you can figure out the rest.
Your pre-raise ownership: 100%
Money in: $500,000
Pre-money valuation: $5,000,000
Post-money valuation: $5,500,000
New investors ownership: 9.1%
Your post-round ownership position: 90.9%
Founders should ask each fund about their ownership target during the first call, whether they're a potential lead or a follow on. If there isn’t a match between…
…then there’s no point in continuing the discussion. If it’s an investor you are particularly interested in because of their domain expertise or brand, you either have to adjust your expectations, test their flexibility, or move on.
Some funds have no flexibility on ownership targets, as it’s a core component of their investment mandate and LP agreement, whereas others have flexibility. Most funds treat ownership targets as guardrails, targeting ranges such as 5% - 8%. It should be fairly obvious from their answer to your question where they fall on this spectrum, but if not, dig in and explicitly ask. Ownership targets will be higher for funds that lead rounds at your stage, versus those that follow on.
Side Note: in general, early stage founders tend to be far too reticent to ask questions about investor business models and economics. Their business models determine a lot, including future incentives. Besides dilution, you should also ask if they typically invest their pro rata (the amount required to maintain their ownership %) in future rounds, and what ownership percentage they target at exit. At a minimum, such questions demonstrate an interest in and knowledge of venture business models, showing you’ve done your homework and are diligently considering incentive alignment.
It can be hard to predict how dilution will affect your ownership position as a founder 3, 4, 5 years down the line and multiple equity financings later. When a fund considers investing in a new company, they often run an exit analysis to forecast how their ownership position obtained at T0 will change over time with additional financings, including whether or not they participate in future rounds to protect their positions (aka exercising pro rata).
We highly recommend founders do the same so they can forecast ownership at exit, prepare for dilution, and adjust expectations over time as assumptions change (# of financings, capital source, growth, etc). Such an analysis will help you determine the amount of dilution you’re comfortable accepting today, with an eye toward your eventual ownership position, not just your ownership position post-financing.
If forecasted dilution is too high, consider alternative funding options such as debt financing, convertible notes, or SAFEs (Simple Agreement for Future Equity), which may result in less dilution. Note that SAFEs and Convertible Notes just kick the dilution can down the road. You should include such instruments in your Pro Forma Cap Table, and expect them to convert and dilute your position. SAFEs, for example, will convert to shares at the next qualified financing round, and are usually set with a valuation cap and/or discount rate, which determine the valuation at which the investor can exercise and therefore their ownership and your dilution. There are many resources on SAFEs and convertible notes, including differences between the two (check out Carta’s here.)
Dilution of 20% per round is at the higher end of normal ranges but not automatically problematic if it's funding meaningful growth that increases total company value significantly. Typical dilution ranges are 10-20% per equity round depending on stage, market conditions, and how much capital you're raising relative to your valuation. The concern with consistent 20% dilution is that after 3-4 rounds you'll have diluted from 100% to potentially 40% or less, leaving founders with minimal ownership. However, if that 20% dilution per round is funding growth from $10M to $30M to $100M to $300M valuation, the absolute value of your stake increases dramatically even as percentage decreases. Evaluate dilution in context of value creation rather than purely percentage terms, ensuring you retain at least 10-15% ownership by Series B to maintain meaningful stake and motivation.
Raising less money to minimize dilution is often false economy that creates more total dilution through multiple rounds than raising adequately once. Founders who under-raise trying to preserve ownership frequently run short of their milestones, forcing bridge rounds or desperate next raises from weak positions that create worse total dilution than initially raising sufficient capital. For example, raising $1M at $8M post (12.5% dilution) then needing emergency $500K bridge at $9M (5.5% dilution) creates 18% total dilution, worse than just raising $1.5M initially at $9M post (16.7% dilution) with better runway and positioning. The optimal approach is raising enough for 18-24 months runway reaching meaningful milestones that significantly improve next round terms, even if this means accepting somewhat higher dilution today. Focus on maximizing ultimate outcome rather than minimizing current dilution percentage.
Calculate multi-round dilution by starting with your current ownership percentage, then calculating new investor ownership for each subsequent round (money raised ÷ post-money valuation), and multiplying your ownership by (1 - new investor %) for each round.
Example:
Start: 100% ownership
Round 1: Raise $1M at $9M pre-money ($10M post-money)
Round 2: Raise $3M at $27M pre-money ($30M post-money)
Round 3: Raise $10M at $90M pre-money ($100M post-money)
Use dilution calculators to model these scenarios easily across many rounds with different assumptions rather than manual calculations for each scenario.
Target maintaining at least 10-15% ownership at exit as a founding CEO after multiple rounds of financing to ensure meaningful economic outcome justifying years of effort and risk. With 10% ownership, a $100M exit generates $10M personally (before taxes), while a $250M exit generates $25M. Below 10% requires increasingly large exits to achieve significant personal outcomes, potentially not justifying the opportunity cost versus alternative careers. However, ownership targets depend on company trajectory and personal goals; some founders successfully build massive companies ending with 5% of billion-dollar outcomes generating huge returns, while others maintain 20-30% of smaller exits. Work backwards from desired financial outcome: if you want $20M and anticipate $150M exit, you need approximately 13% ownership at exit. Model dilution across expected rounds to determine if your current trajectory maintains adequate ownership or if you need to adjust your fundraising strategy.
Option pool expansion dilutes existing shareholders including founders depending on whether it's calculated pre-money or post-money. Pre-money option pools dilute existing shareholders before new investors join (founders absorb the full dilution), while post-money pools dilute everyone proportionally including new investors. For example, if you have 90% ownership and create 15% post-money option pool, you dilute to approximately 76.5% (90% × 0.85), while with 15% pre-money pool you might dilute to 72% if the pre-money valuation is reduced to account for the pool. Most modern deals use post-money option pools as they're more founder-friendly and transparent. Investors typically require 15-20% post-money option pools at each institutional round to ensure adequate equity for future hires. Negotiate pool sizing by demonstrating your specific hiring plans justify smaller pools than investors request, potentially saving several percentage points of dilution.
Negotiate lower dilution for the same capital amount by achieving higher pre-money valuation through stronger traction, competitive investor interest, or favorable market conditions rather than by changing the capital amount. If raising $2M, securing $18M pre-money ($20M post) creates 10% dilution while $8M pre-money ($10M post) creates 20% dilution for identical capital raised. The levers for improving valuation include demonstrating exceptional traction relative to stage, creating competitive dynamics with multiple interested investors, targeting investors who specifically focus on your sector and see strategic value, and timing fundraising during favorable market conditions. However, chasing maximum valuation can backfire if it creates unsustainable expectations for future rounds or requires accepting punitive terms. Sometimes accepting moderate valuation with clean terms from supportive investors creates better long-term outcomes than maximizing valuation with aggressive investors demanding onerous provisions.
Dilution from new investors transfers ownership to outside parties who provide capital, while dilution from option pools creates unissued shares reserved for future employee grants rather than immediately held by specific individuals. Both reduce founder ownership percentages but serve different purposes and have different timing. Investor dilution happens immediately when rounds close and new investors receive their shares. Option pool dilution happens gradually as employees receive grants over months or years, and only when those options are exercised do they convert to actual shares. Unissued option pool shares count toward fully diluted ownership calculations even before granted, meaning you experience the dilution impact immediately when the pool is created even though employees don't receive the shares until later. This timing difference matters for planning; you might have 15% theoretical dilution from option pools but only 5% actual dilution from granted exercised options at any given time.
SAFEs and convertible notes defer dilution to your next priced round rather than eliminating it, converting to equity at that round's valuation typically with 15-25% discount or valuation cap providing early investors benefit for their earlier risk. If you raised $500K on SAFE with $5M valuation cap and your Series A is at $10M pre-money, the SAFE converts as if the round was at $5M, meaning SAFE investors receive approximately twice as many shares as Series A investors per dollar invested, creating more dilution than if you'd raised $500K in the Series A directly. Model SAFE conversion in your dilution forecasts treating them as future equity rounds rather than non-dilutive financing. The benefit of SAFEs isn't avoiding dilution but deferring the valuation discussion until you have more traction justifying higher valuations, potentially resulting in less total dilution if your progress is strong. However, multiple stacked SAFEs with low caps can create severe dilution when they convert, sometimes catching founders by surprise.
Never accept participating preferred liquidation preferences just to achieve lower headline dilution or higher valuations, as participating preferences often eliminate much of your exit value in moderate outcomes despite lower percentage dilution. Participating preferred means investors get their money back first PLUS their ownership percentage in remaining proceeds, effectively getting paid twice. In a $40M exit for a company that raised $15M on participating preferred owning 30%, investors get $15M back then 30% of remaining $25M = $7.5M, totaling $22.5M and leaving only $17.5M for founders and employees despite investors having only 30% ownership. Non-participating preferred means investors choose either their money back OR their ownership percentage, whichever is greater—in this example they'd convert and take 30% = $12M, leaving $28M for everyone else. The difference is $10.5M in founder/employee value. Never trade clean non-participating preferred for higher valuation or lower headline dilution; the long-term cost far exceeds any short-term benefit.
Founder dilution happens through new investor equity rounds reducing founder ownership percentages, while employee option pool dilution comes from creating and granting equity reserved for hiring and retaining talent. Both reduce founder ownership but founder dilution brings in outside capital funding company growth, while option pool dilution doesn't bring cash but enables hiring the team needed to execute. Founders typically experience 10-20% dilution per equity round from investors plus additional percentage points from option pool expansions, with total dilution per round ranging from 15-25% when combining both sources. However, option pool dilution is reinvestment in your team rather than purely outside dilution; you're choosing to give team members ownership to align incentives and attract talent that increases company value. Think of option pools as "good dilution" that builds your team versus investor dilution as "necessary dilution" that funds operations.
Use specialized dilution calculators like Flowlie's Dilution Calculator, Carta's cap table tools, or spreadsheet models to project how multiple funding rounds affect ownership percentages under different scenarios. These tools let you input variables including number of future rounds, capital raised per round, pre-money valuations, and option pool expansions, then immediately see resulting ownership percentages for founders and investors at each stage. Model multiple scenarios including base case with expected parameters, optimistic case with higher valuations and less dilution, and pessimistic case with lower valuations or additional rounds needed. For each scenario, calculate your final ownership percentage and multiply by various exit valuations to understand absolute dollar outcomes. The visualization helps you see compound effects of multi-round dilution that aren't intuitive from single-round calculations, ensuring you make informed decisions about how much dilution to accept today given your expected full fundraising journey.
Down rounds (raising at lower valuations than previous rounds) create severe dilution beyond normal equity financing due to lower valuations and potential anti-dilution provisions protecting previous investors. If you raised Series A at $20M post and must raise Series B at $15M post-money, new investors buying 20% ($3M raise) create that dilution at the lower base, plus existing investors with anti-dilution provisions might receive additional shares maintaining their ownership at the expense of founders. Full ratchet anti-dilution (rarely used) would reset previous investors' price to the new lower price, dramatically diluting founders. Weighted average anti-dilution (more common) provides partial protection to previous investors creating moderate additional founder dilution. Down rounds also damage morale, complicate future fundraising, and signal execution problems to market. The best way to manage down round dilution is avoiding down rounds entirely through realistic initial valuations, adequate capital raises providing sufficient runway, and strong execution hitting milestones justifying increasing valuations.
Flowlie's Dilution Calculator and Runway & Funding Calculator help founders make data-driven decisions about how much to raise, at what valuations, and how dilution compounds across multiple rounds affecting ultimate ownership and outcomes. The Dilution Calculator lets you model different multi-round scenarios showing exact ownership percentages after each round for all stakeholders, while the Runway Calculator helps you determine how much capital you need based on burn rate and milestone timeline, ensuring you raise adequate amounts without under-raising and creating excessive dilution through multiple rounds. These free tools provide the same modeling capabilities that investors use when evaluating deals, leveling the information asymmetry and helping you negotiate from informed positions understanding implications of different structures. Combined with Flowlie's platform features for investor discovery, relationship management, and deal execution, the calculators help founders manage the complete fundraising journey strategically rather than optimizing individual rounds in isolation without understanding long-term consequences.
The relationship between dilution and valuation growth determines whether your absolute stake value increases or decreases despite percentage ownership declining. If you start with 100% ownership of $5M company ($5M stake value), take 20% dilution in a round at $20M post ($16M stake value after dilution), then another 20% dilution at $60M post ($38.4M stake value), your percentage ownership dropped from 100% to 80% to 64%, but your absolute stake value increased from $5M to $16M to $38.4M. The key is ensuring valuation growth significantly exceeds dilution; if valuations grow 3-4x between rounds while you dilute 15-20%, you come out far ahead in absolute terms despite lower percentages. This is why focusing purely on minimizing dilution misses the point—the goal is maximizing absolute dollar outcome, which requires raising adequate capital at reasonable valuations funding growth that increases total company value faster than your ownership percentage decreases.
Prioritize preserving ownership only when you're certain you can achieve necessary milestones with reduced capital, have alternative funding sources supplementing equity, or are approaching profitable self-sustainability where additional capital has diminishing returns. In most other scenarios, prioritize raising adequate capital over preserving ownership because under-capitalization typically creates worse outcomes through missed milestones, competitive disadvantages, stressed teams, and desperate next rounds from weak positions creating worse total dilution. The time to prioritize ownership is when you're choosing between raising $5M at 20% dilution versus $3M at 12% dilution and you're confident the $3M adequately funds your milestone achievement. The time to prioritize capital is when you're choosing between $2M at 15% dilution versus $3M at 20% dilution and the additional $1M meaningfully increases your probability of success. When in doubt, err toward adequate capital rather than ownership preservation, as founders who run out of money have 0% of $0 regardless of how much ownership they preserved.
To simplify the calculations discussed above, we've created two interactive tools:
These calculators can help you make data-driven decisions when planning your fundraise and discussing terms with investors.
Forecasting dilution and planning the terms of your financing round is a crucial part of the fundraising process. It is important for founders to understand the impact of dilution on their ownership stake and the company's valuation. There's a lot of capital raising software out there, including Flowlie, that can help founders answer some of these questions. By carefully considering the amount of capital needed, the pre-money valuation, and the terms of the round, founders can minimize dilution while raising the necessary capital to grow their business.
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