How much equity should I give away when raising money?

Pre-money and post-money valuation

The pre-money valuation is what you and the investor agree the company is worth before the new money goes in. The post-money valuation is the pre-money figure plus the new money. The investor’s percentage is the money divided by the post-money valuation. Raise £250,000 at a pre-money valuation of £1,000,000 and the post-money valuation is £1,250,000, so the investor owns 20% and the founders keep 80%.

The price per share comes from the same numbers. If the founders hold 1,000,000 shares before the round, a £1,000,000 pre-money valuation means £1.00 a share, and the investor’s £250,000 buys 250,000 new shares. The founders still hold 1,000,000 shares, and there are now 1,250,000 in issue.

Dilution means each existing shareholder’s percentage falls when new shares are issued. On its own it makes nobody poorer: if the round is priced at or above what the company was worth, each existing share is worth at least as much as before, and the company has the cash. The questions are the price, and how many rounds the company will need before it is sold or pays its own way.

Dilution across three rounds

Illustrative example

Two founders hold 1,000,000 shares between them. The company raises three rounds at assumed valuations. At Series A the investor asks for an option pool of 10% of the company after the round, created before the new money goes in.

Start: founders: 100%
Seed: £250,000 at £1,000,000 pre-money, post-money £1,250,000: Investor 20%, founders 80%
Series A: £2,000,000 at £6,000,000 pre-money including the pool, post-money £8,000,000: Investor 25%, pool 10%, seed investor 13%, founders 52%
Series B: £8,000,000 at £32,000,000 pre-money, post-money £40,000,000: Investor 20%, every earlier holding reduced by a fifth
Founders after Series B: 52% × 80%: 41.6%, or 20.8% each
Paper value of the founders’ 41.6% at £40,000,000: £16,640,000

The founders own less than half the company after three rounds, and their shares are worth £16.64 million on paper against £1 million at the seed round’s pre-money valuation. Paper value becomes cash only on a sale or a listing, and investors holding preference shares are paid first if the sale price is low.

Option pools

An option pool is a block of shares set aside for options granted to staff. Investors ask for one so that the company can hire senior people without coming back to shareholders, and they can ask for it to be created before their money goes in, as part of the pre-money valuation. The existing shareholders then bear all the dilution from the pool, and the new investor’s percentage is protected.

In the example, the Series A headline pre-money valuation is £6,000,000. Because the 10% pool sits inside it, the shares held by the founders and the seed investor are worth 65% of £8,000,000, or £5,200,000. The £800,000 difference is the value of the pool. Negotiate its size against a hiring plan: a pool larger than the plan needs before the next round dilutes the founders with no matching hires.

Options granted under Enterprise Management Incentives can carry tax advantages for staff. From 6 April 2026, a company can grant them if it has assets of up to £120 million and fewer than 500 employees, with up to £6 million of unexercised options in total and up to £250,000 per employee in any three years. Each year’s grants must be notified to HMRC by 6 July after the end of the tax year in which they were made.

Keeping control

Percentages matter at two thresholds. Shareholders with more than 50% of the votes can pass an ordinary resolution, which covers decisions such as appointing and removing directors. A special resolution, needed to change the articles, needs 75% of the votes cast, so a holder of more than 25% can block one.

After an investment round, control comes as much from the shareholders’ agreement as from the percentages. A 20% investor with a veto over the budget, borrowing, new shares and a sale has a say in each of those decisions whatever the founders hold. Read the consent list as closely as the valuation.

Founders who want to keep a majority for longer can raise less at each round, reach milestones before raising so the valuation is higher, or use borrowing for parts of the plan that can carry repayments, such as equipment through asset finance.

Over 50%: ordinary resolutions
75% of votes cast: special resolutions, including changes to the articles
Over 25%: enough to block a special resolution
Investor consents apply whatever the percentages

Where the option pool comes from

Illustrative example

The same Series A round, £2,000,000 at £6,000,000 pre-money for 25%, with the 10% pool created either before the money goes in or after the round.

Pool inside the pre-money valuation: founders: 52%
Pool inside the pre-money valuation: seed investor: 13%
Pool inside the pre-money valuation: Series A investor: 25%
Pool created after the round: founders, 60% reduced by a tenth: 54%
Pool created after the round: seed investor: 13.5%
Pool created after the round: Series A investor: 22.5%
Cost to the founders of the pool sitting in the pre-money valuation: 2 percentage points

Deciding how much to raise

Start from the plan. List what the company needs to achieve before it can raise again at a higher valuation: a product launched, a level of revenue, a number of customers. Cost each step month by month and add a margin for delay. That total is the amount to raise. Raising more sells shares at today’s price that you could sell later at a higher one. Raising less risks running out before the milestone, and a company close to running out of cash has less room to negotiate the next price.

Then test the stake. Divide the amount by the post-money valuation you can justify. If the answer leaves the founders with too little to stay committed through two or three more rounds, look at raising in stages, at grants or borrowing for parts of the plan, or at raising later once the valuation is higher. The equity dilution calculator runs the arithmetic over several rounds.

Equity dilution calculator

Your shareholding after an investment round, from the pre-money valuation, the amount raised and any new option pool.

Open the calculator

Questions people ask

What percentage should I give an angel investor?

The percentage follows from two numbers you negotiate: the amount and the pre-money valuation. £150,000 at a £600,000 pre-money valuation gives the investor £150,000 ÷ £750,000, or 20%. No rule sets a right percentage. Work out how much the company needs to reach its next milestone, agree a valuation you can defend with evidence, and check that the founders keep enough to absorb later rounds.

What is dilution?

Dilution is the fall in an existing shareholder’s percentage when the company issues new shares. A founder with 80% who sees the company issue shares equal to 25% of the enlarged total ends up with 60%. The founder holds the same number of shares; there are more in issue.

What does fully diluted mean?

A fully diluted shareholding counts every share that exists plus every share that could be issued under options, warrants and convertible loans already agreed. Investors price rounds on a fully diluted basis, so an option pool or a convertible loan that has not yet turned into shares still reduces the founders’ percentage in the calculation. Keep the cap table on that basis.

Should founders keep 51% of the company?

More than 50% lets the founders pass ordinary resolutions, such as appointing directors, but changes to the articles need 75%, and investor consent rights apply whatever the founders hold. Keeping a majority through several rounds means raising smaller sums or at higher valuations.

Do option pools dilute founders?

Yes. An option pool is a block of shares reserved for staff, and it counts in the fully diluted total. If the pool is created inside the pre-money valuation, the existing shareholders bear all of that dilution and the new investor none. In a round of 25% with a 10% pool, that can cost the founders 2 percentage points compared with creating the pool after the round.

Finance is subject to status and to the lender’s terms. A personal guarantee makes you liable for the company’s debt if it does not repay, and it can be enforced against your own assets, including your home. Nothing here is a personal recommendation.

How much equity should I give away?

Pre-money and post-money valuation

Dilution across three rounds

Option pools

Keeping control

Where the option pool comes from

Deciding how much to raise

Equity dilution calculator

Questions people ask

Equity investment

Equity investment

Venture capital

Getting investor ready

Angel investment

How much equity should I give away?

Pre-money and post-money valuation

Dilution across three rounds

Option pools

Keeping control

Where the option pool comes from

Deciding how much to raise

Equity dilution calculator

Questions people ask

Equity investment

Equity investment

Venture capital

Getting investor ready

Angel investment

Start a funding search

Cover for a personal guarantee