How to Model Equity Ownership and Dilution Scenarios Founders Understand in 2026

Most founders don't understand their cap table until it's too late. They raise a seed round, then Series A, then Series B, and suddenly they own 12% of their company wondering what happened to the other 88%.

Equity dilution isn't something that happens to you—it's something you manage strategically. Every funding round is a trade: you're selling ownership for capital to grow faster. The question isn't whether to dilute, but how much dilution is worth how much growth.

This guide shows you how to model equity ownership that founders actually understand. You'll learn common founder equity mistakes that cost millions at exit, how vesting schedules actually work and why you need them, option pool sizing for different stages, how to handle down rounds without losing control, exit modeling across different scenarios, and real examples from recent fundraises with actual cap table numbers.

Common Founder Equity Mistakes

The mistakes founders make early compound over time. Here are the ones that hurt most at exit:

Mistake #1: No Founder Vesting

Two founders start a company 50/50. After 6 months, one founder leaves to take a job at Google. They still own 50% of the company despite contributing 10% of the work.

The fix: All founder equity should vest over 4 years with a 1-year cliff. No exceptions. If a founder leaves before the cliff, they get zero. After the cliff, they've earned 25%, and the rest vests monthly over the remaining 3 years.

This protects the company and remaining founders from someone leaving early but keeping massive equity that should go to people actually building the company.

Mistake #2: Unequal Splits Based on "Ideas"

Founder with the idea takes 60%, technical founder who builds everything takes 40%. Three years later, the idea has pivoted twice and the technical founder is bitter about the split.

The fix: Equal or near-equal splits for all founders working full-time. Ideas are cheap, execution is everything. If someone is contributing significantly less time, they're an advisor (0.25-1%), not a founder (20-50%).

Mistake #3: Option Pool Too Small

Company raises seed with 10% option pool. Needs to hire 5 engineers, 2 salespeople, and a VP of Product. Pool runs out after 3 hires. Now needs to dilute everyone (including founders) to create more options.

The fix: Size option pool for 12-18 months of planned hires. At seed: 10-15%. At Series A: 15-20%. Refresh pool each round before bringing in new investors (so new investors share dilution).

Mistake #4: Raising Too Much at Low Valuations

Pre-revenue company raises $3M at $6M post-money valuation (33% dilution). Raises Series A at $12M post (another 30% dilution). Founders now own 35% after two rounds, which might not be enough to stay motivated through Series B, C, D.

The fix: Raise less early, raise at higher valuations, or accept more dilution but model it out first. Aim to own 15-25% post-Series B. That's enough to be life-changing at a meaningful exit but not so much you can't raise more capital.

Mistake #5: Not Understanding Liquidation Preferences

Company raises $10M at $40M post-money with 1x liquidation preference. Company sells for $50M. Investors get $10M back first, then $40M is split pro-rata. Founders with 20% own $8M, not the $10M they expected.

The fix: Understand that investors get paid first (1x their investment minimum). Model exit scenarios with liquidation preferences included. A $50M exit isn't the same as 20% × $50M for founders.

Vesting Schedules That Work

Vesting protects everyone. Here's how it works:

The Standard: 4-Year Vest with 1-Year Cliff

How it works:

• Year 0-1: Nothing vests (the "cliff")
• End of Year 1: 25% vests all at once
• Months 13-48: 2.08% vests each month (1/48th of remaining 75%)
• End of Year 4: 100% vested

Example: You're granted 400,000 shares on January 1, 2024.

• December 31, 2024: 100,000 shares vest (25%)
• January 31, 2025: 8,333 more shares vest
• Each month thereafter: 8,333 shares vest
• December 31, 2027: Final shares vest, 100% vested

If you leave:

• Before 1 year: You get 0 shares, all return to company
• After 2 years: You keep 50% (200,000), other 50% returns to pool
• After 4 years: You keep 100%, fully vested

When to Use Different Vesting

Advisors: 2-year vest, no cliff (or quarterly vest)

Advisors contribute part-time and might not stick around 4 years. 2 years is enough to ensure they provide value. Some companies do quarterly vesting instead of monthly.

Contractors/Part-time: Milestone-based vesting

"Vest 20% upon launch of feature X, 30% upon reaching 1,000 users, 50% after 6 months of work." Ties equity to deliverables.

Founders with existing revenue: Accelerated vesting

If company already has revenue/customers when you join as co-founder, you might negotiate 1-2 years of credit toward vesting since the company isn't starting from zero.

Acceleration Clauses

Single-trigger acceleration: If company is acquired, all equity vests immediately. (Rare, investors don't like this because you might leave right after acquisition.)

Double-trigger acceleration: If company is acquired AND you're terminated within 12 months, your unvested equity accelerates. This protects you from being fired post-acquisition and losing unvested equity.

Most founders negotiate double-trigger acceleration for 50-100% of unvested equity as part of acquisition terms.

Option Pool Sizing for Different Stages

How much option pool you need depends on your stage and hiring plans:

Pre-Seed / Founding Stage

Option pool: 10-15%

Who you're hiring: First 3-5 employees (engineering, product, early sales)

Typical grants: First engineer: 0.5-2%, early employees: 0.1-0.5%

Seed Stage

Option pool: 15-20%

Who you're hiring: Building initial team (5-15 people)

Typical grants: Engineering leads: 0.3-1%, senior ICs: 0.1-0.4%, junior: 0.05-0.15%

Series A

Option pool: 15-20% (refreshed)

Who you're hiring: Leadership team (VPs, directors) plus team growth (15-50 people)

Typical grants: VP Engineering: 0.5-1.5%, VP Sales: 0.5-1%, Directors: 0.25-0.5%, ICs: 0.05-0.2%

Series B+

Option pool: 10-15% (refreshed)

Who you're hiring: Scaling team (50-200 people)

Typical grants: C-level: 0.3-1%, VPs: 0.15-0.4%, Directors: 0.1-0.25%, ICs: 0.01-0.1%

Option Pool Strategy

Create pool before investor round: If you create a 20% pool, that dilutes existing shareholders (founders) before new investors come in. New investors get their % of a post-pool number. This means founders bear the full cost of the option pool.

Alternative: Create smaller pool, expand later: Some founders negotiate a 10% pool at seed, knowing they'll need to expand it later. This delays some dilution, but requires conversation with investors when you need to refresh.

Best practice: Model your hiring plan for 18 months. Size the pool to cover those hires plus 20% buffer. This avoids awkward "we ran out of options" conversations.

Handling Down Rounds

What happens when your Series B valuation is lower than Series A? This is a "down round" and it complicates ownership.

Anti-Dilution Protection

Most investors have anti-dilution protection in their term sheet. This means if there's a down round, they get additional shares to maintain their economic position.

Full ratchet (rare, harsh): Series A investor paid $5/share. Series B raises at $3/share. Full ratchet means Series A investor's shares are repriced to $3/share, giving them more shares. This massively dilutes founders.

Weighted average (standard): Less harsh. Uses a formula to give Series A investors some additional shares, but not as many as full ratchet. Still dilutes founders more than investors.

Example scenario:

• Series A: Raised $5M at $20M post ($4/share), investors own 25%
• Series B (down round): Raising $5M at $15M post ($3/share)
• With weighted average anti-dilution: Series A investors get additional shares to protect their position
• Founders bear most of the dilution from the down round

How to model this: In your cap table, assume Series B could be at 50-70% of Series A valuation. Show how anti-dilution affects ownership. This prepares you for worst-case scenarios.

Exit Modeling: What You'll Actually Make

Founders often think: "If we sell for $100M and I own 20%, I'll make $20M." Not quite. Here's the real math:

Liquidation Preferences Reduce Your Payout

Example:

Company raised:

• Seed: $2M at $8M post (25% to investors)
• Series A: $8M at $32M post (25% to investors)
• Total raised: $10M
• Founders now own: 37.5% (diluted from 75% → 56% → 37.5%)

Exit at $50M:

• Investors get $10M first (1x liquidation preference)
• Remaining $40M split pro-rata based on ownership
• Investors get: $10M + (50% × $40M) = $30M
• Founders get: 37.5% × $40M = $15M
• Not $18.75M (37.5% × $50M)

Exit at $100M:

• Investors get $10M first
• Remaining $90M split pro-rata
• Founders get: 37.5% × $90M = $33.75M
• Not $37.5M (37.5% × $100M)

Takeaway: At lower exits, liquidation preferences take a bigger bite. At larger exits (3-5x money raised), preferences matter less.

Real Cap Table Examples from 2026

Example 1: B2B SaaS - Standard Path

Founded 2023, two founders 50/50:

• Initial: Founder A 50%, Founder B 50%
• Created 10% option pool (diluted founders to 45% each)
• Seed ($2M at $8M post): Founders 36% each, investors 20%, options 8%
• Series A ($8M at $32M post): Founders 27% each, Seed 15%, Series A 23%, options 8%
• Series B ($20M at $100M post): Founders 20% each, Seed 11%, A 17%, B 20%, options 12%

Exit at $400M in Year 7:

• Total raised: $30M (liquidation preferences)
• After preferences: $370M to split
• Each founder: 20% × $370M = $74M
• Investors: Return 10-15x depending on round

Example 2: Marketplace - Capital Intensive

Founded 2022, three founders:

• Initial: 35% / 35% / 30% split (technical/business/domain expert)
• Seed ($3M at $12M post): Founders 25%/25%/22%, options 10%, investors 18%
• Series A ($10M at $40M post): Founders 19%/19%/16%, investors 36%, options 10%
• Series B ($25M at $125M post): Founders 14%/14%/12%, investors 50%, options 10%
• Series C ($50M at $300M post): Founders 10%/10%/9%, investors 63%, options 8%

Exit at $800M in Year 8:

• Total raised: $88M
• After preferences: $712M to split
• Top founder: 10% × $712M = $71M
• Significant dilution but substantial outcome

Key insight: More capital raised = more dilution. But if you need capital to grow, the dilution is worth it. Better to own 10% of $800M ($80M) than 40% of $50M ($20M).

Key Takeaways

All founder equity must vest (4-year with 1-year cliff). This protects remaining founders if someone leaves early. No exceptions, even for the founder with the original idea. Ideas are worth nothing without execution.

Size your option pool for 18 months of hires plus buffer. Too small and you run out mid-growth. Too large and you dilute unnecessarily. Typical: 10-15% at seed, 15-20% at Series A, refresh each round.

Model dilution across multiple rounds. Founders typically own 40% post-seed, 25-30% post-Series A, 18-25% post-Series B. That's normal. Aim to own 15-25% after Series B—enough to be motivated but not so much you can't raise more capital.

Liquidation preferences reduce your exit payout. At exits below 3x capital raised, preferences take a big bite. At 5-10x exits, they matter less. Always model exits with preferences included to see what you'll actually make.

Down rounds hurt founders most. Anti-dilution provisions protect investors, meaning founders bear more dilution. Model worst-case: Series B at 50% of Series A valuation. Shows you how much ownership you'd retain in bad scenarios.

Exit scenarios should include multiple valuations. Conservative ($50M), base ($200M), optimistic ($500M+). This shows whether your ownership stake is worth the risk. Better to own less of a bigger outcome than more of a smaller one.