---
title: "What Is Dilution Analysis?"
term: "Dilution Analysis"
description: "Dilution analysis models how ownership percentages change across financing events — new rounds, pool expansions, note conversions, and exit scenarios — on a fully diluted basis."
date: 2026-07-25T00:00:00.000Z
updated: 2026-07-25T00:00:00.000Z
topics: ["venture-capital"]
source: https://venturecapitaltracker.com/glossary/dilution-analysis
---

# What Is Dilution Analysis?

> Dilution analysis models how ownership percentages change across financing events — new rounds, pool expansions, note conversions, and exit scenarios — on a fully diluted basis.

**Dilution analysis** is the modeling exercise that forecasts ownership shifts after current and future financings — essential before accepting term sheets or granting large option packages.

### How it works

Analysts start from today's fully diluted [cap table](/glossary/cap-table): common, preferred, options, warrants, SAFEs, and notes. They layer the proposed round — pre-money valuation, new money, option pool target — and calculate post-close ownership.

Advanced models stack multiple rounds, down-round anti-dilution, pro rata participation, and exit waterfalls with liquidation preferences.

Founders should compare scenarios: flat round vs up round, with and without note conversion, and sensitivity to pool size. Investors verify that SAFE stacks and side letters match founder representations.

Tools include Carta scenario modeling, counsel spreadsheets, and [cap table scenario](/glossary/cap-table-scenario) templates. Outputs drive negotiation on valuation, pool, and whether notes convert at cap or discount.

### Why it matters

- **Founders:** Know your ownership at exit under realistic paths — not just best-case IPO headlines.
- **Investors:** Dilution analysis catches broken cap tables early — mispriced notes, missing pro rata, or insufficient pool for hiring plan.

### Common mistake

Modeling only the current round while ignoring unissued SAFEs and promised refreshes. Fully diluted means everything that could convert, not just what's outstanding today.

### Related ideas

See also [dilution](/glossary/dilution), [cap table scenario](/glossary/cap-table-scenario), liquidation waterfall, and term sheet modeling.

## FAQ

### What is dilution analysis in simple terms?

A spreadsheet or model showing who owns what after the next round — and the one after that — including options and converting notes. It answers how much founders and employees really keep.

### Why does dilution analysis matter?

For founders, it prevents nasty closing surprises. For investors, it validates cap table cleanliness and shows whether prior instruments convert as expected.


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Source: https://venturecapitaltracker.com/glossary/dilution-analysis