How dilution is calculated
In a capital increase, the company issues new shares to the investors. Existing shareholders keep the same number of shares, but their percentage goes down: that is dilution. Three formulas are all you need:
- Price per share = pre-money valuation ÷ number of existing shares
- New shares = amount raised ÷ price per share
- Investors' stake = amount raised ÷ post-money valuation (pre-money + amount raised)
All existing shareholders are diluted in the same proportion: each keeps their stake multiplied by (1 − stake sold). The simulator works on a fully diluted basis, meaning it also counts the BSPCE (French employee share warrants) reserved for staff.
Example: a Seed round followed by a Series A
Two founders hold 50,000 shares each. They raise €1M in a Seed round on a €4M pre-money, with a 10% BSPCE pool created before the round. The price per share comes out at €35, the investors get 20% and the founders go from 100% to 70%.
In the Series A, €5M raised on a €20M pre-money sells a further 20%: the founders end up with 56%, and the Seed investors are diluted as well. This is the scenario loaded by default in the simulator above.
Option pool: before or after the round?
In France, the employee option pool usually takes the form of BSPCE, share warrants with favourable tax treatment that young French companies (most often organised as an SAS, the simplified joint-stock company) can grant to employees and officers. Investors generally ask for the pool to be set up before they come in, inside the pre-money: its creation then dilutes only the existing shareholders, which in effect lowers the founders' real valuation. Created after the round, it dilutes everyone, investors included. The size of the pool (often 10 to 15% of the capital) and its timing are negotiation points in their own right.
Limiting dilution with non-dilutive funding
Every euro obtained without giving up equity reduces the amount you need to raise, or lets you raise later at a higher valuation. In France, interest-free founder loans (prêts d'honneur), loans from Bpifrance (the French public investment bank), innovation grants and the research tax credit (crédit d'impôt recherche, CIR) are often combined with an equity round, including for foreign founders setting up a French company.
Frequently asked questions
How do you calculate dilution from a funding round?
The stake sold to investors equals the amount raised divided by the post-money valuation (pre-money plus the amount raised). Every existing shareholder keeps their stake multiplied by (1 − stake sold). Raising €1M on a €4M pre-money sells 20%: a founder holding 50% ends up with 40%.
What is the difference between pre-money and post-money valuation?
Pre-money is the value of the company before the investors' money comes in; post-money is the pre-money plus the amount raised. The price per share is based on the pre-money: pre-money divided by the number of existing shares.
What is a BSPCE pool, and should it be created before or after the round?
BSPCE (bons de souscription de parts de créateur d'entreprise) are the French equivalent of employee stock options, reserved for staff of young companies. Investors usually ask for the pool to be created before the round, inside the pre-money, so that only existing shareholders are diluted by it. Created after the round, it dilutes the new investors too. The simulator handles both cases.
How much equity should you sell in each round?
At seed stage as in Series A, rounds most often sell between 15% and 25% of the company. Beyond 30%, there is little room left for later rounds and the founders risk losing their majority early.
How can founders limit dilution in France?
By raising less, or later, thanks to non-dilutive funding: interest-free founder loans (prêts d'honneur), Bpifrance loans, innovation grants and the research tax credit (CIR). Founders can also negotiate the size and timing of the option pool, and grow the valuation before each round.
Indicative simulation: a single class of shares, with no BSA AIR (the French equivalent of a SAFE), convertible bonds, anti-dilution clause or liquidation preference. It does not constitute legal or investment advice.