Cap table across rounds — simulating dilution Seed → A → B → C
🎯 Goal: Simulate founder dilution across Seed → A → B (→ C) via multiplication factors; understand the ESOP pool's role; read who owns how much at each milestone.
Every funding round (and every time you create/expand the ESOP pool) issues new shares, diluting all existing holders proportionally. The key: dilution is MULTIPLICATION, not subtraction. If a round sells a total of d%, existing holders are multiplied by (1 − d). Viewing the cap table across rounds lets founders see in advance how much % they'll have after Seed, A, B, C — so no surprises, and to see why raising just enough + raising valuation between rounds protects equity.
Lesson content
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Multi-round dilution & ESOP. The ESOP (Employee Stock Option Plan) is a "share pool" the company reserves to reward and retain great staff. Creating or expanding it also issues new shares → it also dilutes (usually founders bear it). The golden rule: each round that issues new shares (to investors or to the ESOP) multiplies existing holders' % by a factor below 1. Your share count is unchanged, but the total rises so your % drops.
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Framework: dilution by factors. If a round sells a total of d% (including any ESOP created that round), every existing holder is multiplied by (1 − d). • Round A sells 20% to Investor A + creates a 10% ESOP → new total = 30% → factor 0.70. • Round B sells 20% to Investor B → factor 0.80. Founders after several rounds = starting % × factor A × factor B × … Example: 80% (after Seed) × 0.70 (A) = 56%; × 0.80 (B) = 44.8%. This is "reverse compounding": each round shaves off multiplicatively, so the more rounds, the faster the % falls.
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TOOL: Multi-round cap table. Round A: 20% to Investor A + 10% ESOP → existing holders × 0.70. Round B: 20% to Investor B → existing holders × 0.80.
Shareholder
after Seed
after A
after B
Founders
80%
56%
44.8%
Seed investors
20%
14%
11.2%
ESOP pool
—
10%
8%
Series A investors
—
20%
16%
Series B investors
—
—
20%
TOTAL
100%
100%
100%
Read by column: every existing holder (including Seed investors and the ESOP) is multiplied by the same factor next round; only the investors of that round get their fresh new %.
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Vietnam comparison (step by step). 1) The ESOP is implemented via share/option mechanisms under the Enterprise Law and the company charter. 2) A multi-round cap table is usually recorded in the shareholders' agreement so everyone knows who holds what. 3) Share class (common/preferred) and existing investors' anti-dilution terms can change the actual figures. 4) Coolmate, across Series A→B→C, faced similar dilution — real figures always need an accountant & lawyer to build and reconcile with the share register.
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Multi-round dilution traps: • Subtracting % instead of multiplying by a factor: 80% selling another 20% is not "80−20 = 60"; it's 80×0.8 = 64% if that round sells only 20% (different again with an ESOP). • Creating a huge ESOP too early: dumps dilution on founders from the start. • Too many rounds / selling lots of % each round: the % falls fast, risking loss of control. • Forgetting existing investors also dilute: so some demand anti-dilution rights (read the terms). Content is for LEARNING only, not financial/legal advice.
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Checklist for simulating a multi-round cap table: ① How much total % does each round sell (including new ESOP)? → compute the factor (1 − d). ② Compound: founders % = starting % × the factors. ③ Check each column totals 100%. ④ Is the ESOP counted pre- or post-round, and who bears its dilution? ⑤ Do any investors have anti-dilution rights? ⑥ Test a "sell less % + higher valuation" scenario to see how much the founders' % improves.
Practice exercise
🔬 APPLIED EXERCISE: From the table above, founders hold 44.8% after round B. (1) Suppose round C issues shares multiplying existing holders by 0.8 — compute founders' % after C. (2) Redo it "healthier": round C multiplies by only 0.9 (sell less % thanks to a higher valuation) — compare the two.
Worked template: ANSWER: (1) 44.8% × 0.8 = 35.84%. (2) 44.8% × 0.9 = 40.32%. A ~4.5-point gap just from selling less % in one round. Lesson: the more rounds, the lower the share — so raise just enough and raise valuation between rounds to dilute less.
Quick quiz
1. Why does creating or expanding the ESOP pool also cause dilution?
→ Because it issues new shares, lowering existing holders' %
Creating/expanding the ESOP issues new shares, lowering existing holders' %.
2. How does dilution across multiple rounds work?
→ Multiply the old % by a factor below 1 each round that issues new shares
Multi-round dilution multiplies the old % by a factor below 1 each round that issues new shares.
3. Round A sells 20% to Investor A and creates a 10% ESOP. What is the factor for existing holders?
→ 1 − 0.30 = 0.70
Round A sells 20% + a 10% ESOP = 30% → factor (1 − 0.30) = 0.70.
4. In the table, founders go from 80% (after Seed) to 56% (after A) mainly because:
→ Round A issued new shares to Investor A and the ESOP, diluting existing holders (80 × 0.70 = 56)
80% → 56% because round A issues shares to Investor A and the ESOP, existing holders × 0.70.
5. Founders hold 56% after A; round B multiplies by 0.8. What % after B?
→ 44.8% (56 × 0.8)
56% × 0.8 = 44.8% — dilution is multiplication, not straight subtraction.
6. What's the takeaway from a multi-round cap table for founders?
→ Raise just enough and raise valuation between rounds to reduce dilution
You should raise just enough and raise valuation between rounds to reduce dilution.
Advanced
A deeper framework
At an advanced level, see dilution as "reverse compounding": final founder % = starting % × the product of each round's factors (1 − dᵢ). Because it's compounded multiplication, each extra point of % sold in an early round is "amplified" by every later round — so selling less early (when the valuation is low) matters more than it seems.
This is also why raising just enough and lifting valuation between rounds protects equity: a higher valuation lets you sell less % for the same money, i.e. the factor (1 − d) stays closer to 1, and the product of factors erodes less. Conversely, "raise a lot to be safe" at a low valuation makes one factor very small, dragging down the whole chain.
Two strategies, same 3 rounds — the product of factors decides
Strategy A: sell 30% each round
1 × 0.7 × 0.7 × 0.7 = 34.3%
Strategy B: sell 20% each round
1 × 0.8 × 0.8 × 0.8 = 51.2%
Gap after 3 rounds
~17 points of founder equity
Meaning: selling 10 points less/round
keeps nearly 1/5 more of the company
Same 3 rounds, just 10 points' difference in % sold each round, and founders keep 51.2% instead of 34.3% — compounding turns a small per-round difference into a large one.
Common trap: Thinking "raise a lot in the first round to be safe" is safe. Selling lots of % at a low early valuation makes the factor (1 − d) very small from the start, and every later round compounds on it → founders drop to a minority fast and can lose control before any exit.
Advanced questions
1. Founders sell 30% each round for 3 rounds. What % remains (ignoring a separate ESOP)?
→ 34.3% (1 × 0.7 × 0.7 × 0.7)
Dilution compounds: selling 30% → multiply by 0.7. After 3 rounds: 0.7³ = 0.343 → 34.3%. Subtracting "30×3" is wrong because dilution isn't linear addition/subtraction.
2. Why is selling less % in EARLY rounds especially important?
→ Because the early round's factor is compounded by every later round, so each extra point sold then is "amplified"
Final % = the product of factors. A small factor early, multiplied by all later rounds, drags the final result more than the same sale later — so protecting equity early has the greatest value.
3. The most sensible equity-protection strategy across rounds (for learning) is:
→ Raise just enough each round and lift valuation between rounds, keeping each factor (1 − d) closer to 1
Selling less % (via rising valuations) keeps each factor near 1, so the product erodes less. Maxing out early or a too-large early ESOP both create a small factor that drags the whole chain down.
🎯 Real-life mission
REAL-LIFE MISSION: Using the multi-round cap table as a template, create your own scenario: set investor % at each round (Seed/A/B) plus one ESOP creation. Compute each round's factor (1 − d), compound them into the founders' % after round B. Then try lowering the % sold in one round and see how much the founders' number improves.