Founder Ownership by Round: How Equity Dilution Really Works (With Data)

After peaking at 1,035 IPOs in 2021, annual listings in the U.S. have nosedived, dropping to just 225 IPOs in 2024.

This reflects a simple message: More companies prefer staying private than going public. Now, what does this mean for founder ownership?

With IPOs dwindling and startups staying private longer, there's a surge in multi-stage fundraising — Series A, B, C, D, and beyond. Sounds great… until you look at the cap table.

Founder ownership by round often chips away as you give up more than planned to keep the lights on and scale.

So, before you walk into your next round, make sure your equity strategy is solid. This guide breaks it down so you can raise smart, not sorry.

What is founder dilution, and why does it happen?

Founder equity dilution occurs when a founder’s percentage ownership in their company decreases through the issuance of new shares. Most founders begin with 100% ownership, but this stake decreases with each funding round or share issuance event. This reduction in ownership percentage is the core of equity dilution.

For founders, understanding how dilution works in startups is more critical now than ever, with the IPO dip in place. 

Take Pandora's founding story, Co-founder Tim Westergren held only 2.39% of Pandora before its IPO. This extreme dilution stemmed from poor launch timing. Pandora launched during the dotcom bubble and struggled to raise capital after it burst. 

After facing over 300 VC rejections, the company secured funding, but at the cost of substantial equity. Each subsequent round further diluted the founders' stakes.

When does dilution occur?

As a founder, you’ll face equity dilution in three primary scenarios:

1. Fundraising‍

The most common dilution trigger occurs when startups raise capital by selling equity to investors. Each successive funding round (seed, Series A, B, and beyond) creates new shares that reduce existing shareholders' ownership.

‍2. Convertible debt

‍When startups issue convertible notes, these debt instruments eventually convert to equity upon triggering events like new funding rounds. Once converted, these notes create new shares that dilute existing stakeholders.

3. Stock options

‍Employee stock options, when exercised, create new shares from the option pool. While options don't cause immediate dilution when granted, they dilute ownership once employees exercise them.

Calculating founder ownership by round with the equity dilution formula

To calculate your post-dilution ownership percentage, use this formula:

New Ownership % = ( Your SharesTotal Shares After New Issuance ) × 100

With this calculation, you’ll know the exact stake decrease after new shares enter circulation. The formula accounts for:

• Number of new shares issued to investors
• Changes in company valuation
• Conversion of notes with various terms (warrants, valuation caps, discounts)
• Expansion of option pools
• Any stock repurchases

How issuing new shares reduces existing ownership (formula usage)

When a startup issues new shares, the ownership pie gets divided into more slices. Founder ownership by round doesn't shrink in absolute terms but represents a smaller percentage of the whole.

For example, your company's shares before issuing new shares are 1,000,000. Out of this, your shares are 250,000, i.e., 25%.

Now, let’s say you issue 500,000 new shares. This doesn’t change the number of shares you own (250,000) but shrinks the percentage.

Your current founder ownership = 250,0001,500,000 × 100= 16.67%

Founder ownership by round: looking under the hood

Here’s a table that represents the average ownership distribution for startups across different stages. 

‍Note: These figures are average industry insights and can vary based on factors like company valuation, negotiation strength, and market conditions.

Here are some key patterns you’ll notice in founder dilution (more to be covered later).

• Steepest drop in early rounds: The largest percentage ownership decline typically occurs between pre-seed and Series A, where founders often lose 40-60% of their initial stake.
• Control thresholds: Most founders lose majority control (>50%) by Series A or B. By Series C, founders typically hold 15-25% of their companies.
• Advisor allocation: Early-stage companies typically allocate 0.2-1% equity to individual advisors. The total advisor pool rarely exceeds 2% of the cap table.
• ESOP growth: Employee ownership steadily increases from 10-15% at Seed to 15-20% by Series C as companies expand their teams and need additional talent incentives.
• Investor dominance: By Series B, investors collectively own more than the founding team. By Series D, investor ownership often reaches 70% or higher.

Equity split beyond investors: How much to allocate for everyone

Now let’s go one step further and break down how equity is distributed within each stakeholder group.

The founder-cofounder split

Y Combinator’s Group Partner Michael Seibel recommends equal or near-equal splits.

Many successful startups have followed this philosophy.

For example, Airbnb’s co-founders split equity evenly at 33/33/33, while Dropbox’s founders settled on a close-to-equal 51/49 division. Microsoft began with a 60/40 split between Bill Gates and Paul Allen, later adjusted to 64/36. Apple originally split the equity into 45/45/10 for Steve Jobs, Steve Wozniak, and Ron Wayne.

Equity is often divided in ratios like 51-49, 60-40, or 40-30-30, typically reflecting one founder’s larger role or responsibility. In most cases, the founder with the highest share is the CEO.

Smart equity management means balancing the CEO premium without tipping the scales too far. Splits that are heavily skewed often create resentment among co-founders and can raise red flags for investors.

A more balanced approach not only reflects mutual commitment at the outset but also ensures both founders remain equally motivated and appropriately rewarded in the long run.

Quick tip: Use standard four-year vesting with one-year cliffs to protect against departures. This structure allows for generous equity splits but also ensures that those who leave early don't retain excessive ownership.

Top management: CEOs and CXOs

​​For startups that have raised a Series A, Venture Hacks recommends allocating 5–10% equity for the CEO and 2–5% for the COO.

If you’ve hired a CXO after Series A, they may expect anywhere between 2-5%, adds Sarthak Ahuja. 

At the seed stage, CXO hires may receive significantly more equity, especially when funding is limited and cash compensation is leaner.

By the time a company reaches the post-Series B stage, equity grants for top management are typically much smaller, with the exact figures varying based on the company’s size, valuation, and leadership structure.

Employee equity allocation

According to a discussion between Mark Peter Davis, Managing Partner at Interplay, and Phuong Ireland, Partner at Interplay’s Incubator, employee equity grants follow predictable patterns:

Early employees receive significantly more equity than later hires. Rockstar hires and critical leadership roles warrant 1-2%, whereas essential but non-senior roles receive 0.2-1%.

Early-stage startups typically set aside 10-20% of their equity for the ESOP pool and top it up as they scale.

Advisor equity allocation

Sarthak Ahuja, Director, Niamh Ventures Private Limited, suggests advisors should receive no more than 0.25% equity each. The total advisor pool should never exceed 2% of company equity. 

This allocation strategy lets founders maintain control and still incentivizes quality advisors to contribute meaningful expertise to the startup's growth.

Round-by-round breakdown on equity dilution [+ cap table view]

Let's track the ownership changes for a startup through its funding journey:

Founder ownership by round: Seed 

At pre-seed, say the company’s two co-founders, Sarah and Michael, split ownership 60/40. Before raising capital, they set aside 10% for an employee option pool and allocated 1% to early advisors.

That dilutes the founders even before fundraising. Their updated cap table:

‍

When raising their seed round, the company secures $1.5 million at a $6 million pre-money valuation.

Here’s how the company’s cap table looks after the seed round, with seed investors' stake at 20%.

Note: This means all previous shareholders now own 71.2% of the company post-Seed. 

Founders maintain significant control with a combined 71.2% ownership, though they've already experienced 29% dilution from their original stakes.

Founder ownership by round: Series A 

Eighteen months later, the same company raises $5 million at a $20 million pre-money valuation. The new investors receive 20% ownership.

Here’s how the company’s cap table looks after Series A.

Note: Now, the 71.2% owned by existing shareholders gets diluted again.

The founders' combined ownership drops to 56.96%.

Founder ownership by round: Series B 

With strong growth, the company raised $10 million at a $40 million pre-money valuation, and Series B investors took 20% ownership.

Here’s how the company’s cap table looks after Series B.

Note: The existing 56.96% shrinks again.

Founders now hold just 45.56% combined ownership. Their collective stake has been diluted by 54.432% from pre-seed.

Founder ownership by round: Series C 

With significant traction, the company secures $20 million at an $80 million pre-money valuation. Series C investors take 20% ownership.

Here’s how the company’s cap table looks after Series C.

Note: Cap table after another 20% dilution.

The founders now hold only 36.45% combined ownership. From inception, they've experienced 63.55% dilution.

Common startup dilution patterns founders should know

Here are a few predictable founder dilution trends across funding stages.

Delayed but inevitable equity dilution with SAFEs

SAFEs (Simple Agreements for Future Equity) postpone dilution until your next qualified financing. But their structure impacts future founder ownership by round. Here, three factors determine your dilution impact.

1. Pre-money vs post-money SAFEs: Pre-money SAFEs dilute all stakeholders at conversion, so the dilution is uniform across founders and investors. But post-money SAFEs preserve investor ownership percentage, which dilutes the founders’ ownership more.

2. Valuation caps: Caps set the maximum company valuation at which SAFE investments convert to equity. If your priced round exceeds the cap, SAFE holders receive shares at a lower price than new investors. It ultimately results in unexpected dilution.

3. Conversion discounts: Many SAFEs offer discounts on share prices when converting to equity. It’s less impactful than valuation caps, but these discounts still increase your dilution. When SAFEs include both caps and discounts, investors choose whichever calculation yields more shares.

Predictable dilution with priced rounds

Priced rounds create immediate, calculable dilution but come with a few complexities. Here, investors pay you in return for the shares you offer. When you raise a priced round, three factors influence your equity dilution.

1. Valuation type: Your valuation type (pre-money or post-money) influences the dilution impact of your priced round. Always use fully diluted figures (after exercising all options, warrants, and convertibles) when calculating dilution to understand true ownership distribution.

2. Convertible instruments: The priced round is when your SAFEs and convertible instruments become equity. The cumulative effect of multiple convertible instruments (of the early + new investors) can surprise founders with greater-than-expected dilution.  

3. Option pools: Investors expect you to expand your employee option pool before closing a round. This expansion comes from founder equity, not investor shares, creating hidden dilution. So, remember to factor in your future plans (hiring and employee option allocation) before the expansion.

Funding and valuation

Raising only the capital you need, at appropriate valuations, is the best strategy to minimize unnecessary equity dilution. Because: 

1. Funding: Excessive funding creates unnecessary dilution and often leads to inefficient spending. Insufficient funding stalls growth and forces subsequent fundraising at lower valuations. So, it’s important to raise funds based on expected milestones rather than target amounts. 

2. Valuation: Extremely high early valuations might reduce immediate dilution but often lead to down rounds later, which damage reputation and trigger anti-dilution provisions. Conversely, low valuations preserve more room for growth but may surrender unnecessary equity.

How founders can protect equity over time

As said, dilution is inevitable, but here are some solid strategies to protect founder ownership by round.

Use valuation caps

Caps on convertible instruments serve as early indicators of potential dilution. Though founders generally dislike caps, they've become standard in early-stage financing. Use these caps as a guide to estimate how your convertible instruments will impact dilution. 

Don't raise more than you need

From a dilution perspective, it’s wise to take as little outside capital as possible. Early money is the most expensive you'll ever accept because your company has minimal value. That means each invested dollar purchases a larger stake. This applies even with SAFEs and convertible notes, which may defer valuation decisions but still represent much future dilution.

Research alternative financing options

Fundraising doesn’t always mean giving away equity. Explore options like venture debt or revenue-based financing that provide growth capital while minimizing dilution. For some business models, especially with predictable revenue, these alternatives can supplement or replace traditional equity rounds.

Leverage anti-dilution provisions

Anti-dilution protections shield against the impact of down rounds or new shares sold at lower prices. There are two common provisions here.

• Full ratchet provisions - allow investors to maintain nearly identical ownership percentages.
• Weighted average calculations - compares both the amount and price of shares in previous rounds to new rounds to reduce dilution impact.

Push for the latter when possible, as they are more founder-friendly and still protect investors from harmful down rounds.

Maintain a clear capitalization table

A well-structured cap table forms the foundation for equity protection. It streamlines due diligence during fundraising and helps avoid costly equity-related conflicts. Consider using a cap table management software rather than error-prone spreadsheets to:

• Document all equity transactions with proper legal agreements
• Regularly review and update your cap table after each transaction
• Model dilution scenarios before accepting new investments
• Implement vesting schedules for all equity grants, including founder shares

Your cap table with EquityList = Solid base for smart dilution moves

As your company scales, so does your cap table's complexity. Cap table management isn't a one-time task; it requires consistent attention and becomes the central reference point for making informed decisions about dilution impact. 

Spreadsheets quickly become inadequate for tracking multiple rounds, options, and conversion rights. That’s why smart founders recognize that proper cap table management directly impacts their company goals. 

Why founders choose EquityList:

✔ Single source of truth - Aggregate your entire cap table & securities data in one place to accurately track your ownership structure

✔ Integrated with stock options - Manage your cap table seamlessly as it becomes complex with stock option exercises

✔ Fundraising ready - Give investors and auditors direct access to verify all data they need for due diligence

Digitize your cap table to eliminate errors and track real-time shareholding from day one through every funding round. Protect your equity and streamline fundraising with EquityList today.

FAQs on founder ownership by round

1. How much should founders own after a seed round?

Founders typically retain between 60-70% ownership after a seed round. This percentage varies based on the amount raised, valuation, and market conditions. Maintaining majority ownership at this stage is generally considered healthy, though founders with strong traction or previous exits may retain even more.

2. What is a founder round?

A founders' round establishes the equity distribution among co-founders while raising the required initial capital to start operations. The term ‘founders' round’ is not a technical term, but is used colloquially.