Fully Diluted Shares

The total number of shares that would exist if all options, warrants and convertible instruments were converted into shares.

Example

9,000,000 issued shares plus 1,000,000 in the option pool and 500,000 owed to SAFE holders gives 10,500,000 fully diluted.

Important

Ownership quoted on issued shares alone looks higher than it really is. Use fully diluted figures, including unconverted instruments.

Related terms

• Cap Table — The running ledger of who owns what percentage of a company, on what instrument and what terms, before and after each financing event.
• Shares outstanding — The number of shares a company has issued and that are currently held by investors. The diluted figure adds shares that would exist if outstanding options and convertible instruments were exercised.
• Option Pool — A block of shares set aside to grant stock options to employees, advisers and future hires.

Lessons that explain it

• Ownership at exit is ownership today multiplied by every round's dilution — An early investor's final ownership is their entry stake reduced by each later round and option pool increase. Modelling the chain shows what exit value is needed for a target return. (11 min)
• A cap table is a list of who owns what, and it only ever gets longer — A capitalisation table records every share, option and convertible claim in a company. Ownership percentages depend on whether you count only issued shares or everything that could become shares. (9 min)
• What the cap table tells you that the founders did not — A cap table reveals founder motivation, past decisions and future obstacles. Low founder ownership, dead equity, unconverted instruments and messy structures are signals worth reading before investing. (10 min)
• Vesting decides who keeps equity; the pool decides how much is left to give — Founder and employee shares are usually earned over time. Vesting protects the company from dead equity, and pool size determines whether it can hire without another dilutive top-up. (11 min)
• Model the rounds between now and the exit, or your ownership estimate is fiction — Today's percentage is not what you will hold at an exit. Projecting future rounds and pool top-ups gives a realistic ownership figure and a much better sense of what an outcome would return. (12 min)
• Check what a founder stands to gain, and what else competes for their time — Founder incentives shape behaviour. Diligence looks at remaining ownership, salary, secondary sales, other roles and personal financial pressure to judge whether founders are motivated for the long journey ahead. (10 min)

All 578 terms in the Investing glossary