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📈 Equity Dilution Formula
Ownership After Round = Current Ownership × (1 - Dilution %)
Example: If you own 60% and raise a round that dilutes you by 20%:
60% × (1 - 0.20) = 60% × 0.80 = 48%
💡 Pro Tip: Always calculate cumulative dilution, not per-round. Dilution compounds!
🛡️ SAFE Notes at a Glance
Valuation Cap
Your valuation can't exceed this cap. Lower cap = better for investors.
Price = Cap / Pre-money Valuation
Discount
Get shares at a discount to the priced round.
Price = Priced Round Price × (1 - Discount)
⚠️ Common Mistake: A $5M cap is NOT the same as a $5M pre-money valuation. The cap is the effective valuation ONLY for the SAFE amount.
⏳ Vesting Basics
Standard Vesting
4-year cliff: 25% vests at 1 year, then monthly over 3 years
Monthly Vest = Total Grant ÷ 48 months
Cliff Period
Nothing vests until the cliff (usually 1 year). If you leave before, you get $0.
💡 Pro Tip: Acceleration triggers let you vest remaining equity on acquisition or termination. Negotiate these!
💰 Runway Math
Runway (months) = Cash Balance ÷ Monthly Burn Rate
Gross Burn
Total monthly expenses
Salaries + Rent + Software + Marketing
Net Burn
Gross burn minus revenue
Gross Burn - Monthly Revenue
⚠️ Danger Zone: Start fundraising when you have 6 months of runway. It takes 3-6 months to close a round.
📊 LTV:CAC Ratio
LTV:CAC = Lifetime Value ÷ Customer Acquisition Cost
< 3:1
Unsustainable — You're spending too much to acquire customers
3:1 to 5:1
Healthy — Solid unit economics, room for growth
> 5:1
Great! — Consider spending more on acquisition
Payback Period
< 12 months is ideal for SaaS
CAC ÷ (ARPU × Gross Margin)
⚖️ Cap Table Best Practices
- ✅ Option Pool: Create before Series A (usually 10-20%)
- ✅ Pro Rata Rights: Allow investors to maintain ownership
- ✅ Liquidation Preference: 1x non-participating is standard
- ✅ Anti-Dilution: Broad-based weighted average is founder-friendly
- ✅ Board Seats: Keep founder control early (2-2-1)
⚠️ Watch Out: Participating preferred with multiple liquidation preferences can destroy founder economics at exit.
🎯 Key Milestones by Stage
Pre-Seed
• 1-2 co-founders
• $500K-$2M raise
• 10-25% dilution
• Product built
Seed
• Team of 5-10
• $2M-$5M raise
• 15-25% dilution
• PMF signals
Series A
• Team of 15-30
• $10M-$20M raise
• 20-30% dilution
• $1M+ ARR
Series B+
• Team scales fast
• Larger raises
• Less dilution per round
• Growth metrics
🔐 Common Terms Explained
Pre-Money Valuation
Company value BEFORE new money arrives
Post-Money Valuation
Pre-money + Investment = New valuation
Fully Diluted
All shares outstanding + option pool + all convertible securities
Pro Rata
Right to invest enough to maintain current ownership %