You’ll see “fully diluted” attached to almost every ownership percentage discussion at a startup, and it matters because it changes the denominator in a fairly significant way. This post covers what actually gets counted, why companies default to this measure, and how it affects the percentage ownership figure you might be quoted.
What does “fully diluted” actually include?
A fully diluted share count includes all currently issued and outstanding shares, plus every option that’s been granted but not yet exercised, plus the entire unallocated option pool reserved for future hires, plus any other convertible securities like warrants or convertible notes, all counted as if they’d already been exercised or converted into shares. It’s a hypothetical maximum share count, not the actual number of shares that exist today.
Why does this matter for calculating my ownership percentage?
Because it’s almost always the denominator used when anyone quotes you an ownership percentage, and it’s a larger number than just the currently outstanding shares, which means your percentage looks smaller on a fully diluted basis than it would if only actual issued shares were counted. This is standard practice specifically because it gives a more realistic, forward-looking picture of what your ownership will actually look like once outstanding grants and pool shares eventually get issued.
Does this mean my ownership percentage is inflated somewhere else?
No, it’s actually the more conservative, realistic number. If a company quoted your ownership percentage using only currently issued shares, ignoring the option pool and other unexercised grants, that percentage would overstate your actual future position, since all of those other shares are very likely to eventually be issued and dilute everyone’s percentage. Fully diluted accounts for that in advance.
How is this different from “issued and outstanding”?
Issued and outstanding refers only to shares that have actually been issued today, meaning founders’ shares, investor shares from closed rounds, and any options that have already been exercised. It excludes the unallocated option pool and any unexercised options, making it a smaller number than the fully diluted count, and one that changes more slowly since it doesn’t move every time a new option grant is approved.
Worked example
Say a company has 8,000,000 shares issued and outstanding today, plus 1,500,000 shares reserved in an unallocated option pool, plus 500,000 shares underlying options that have been granted but not exercised.
The fully diluted share count is 10,000,000 (8,000,000 plus 1,500,000 plus 500,000). If you hold options for 30,000 shares, your fully diluted ownership is 30,000 divided by 10,000,000, or 0.3%. Calculated only against the 8,000,000 issued and outstanding shares instead, it would look like 0.375%, a higher but less realistic number, since it ignores shares that are very likely to eventually be issued.
FAQ
Is fully diluted ownership the number I should pay attention to? It’s generally the more accurate, standard figure used across the industry for comparing offers and understanding your realistic future position, so yes, it’s the number worth focusing on.
Does the option pool count against me even before it’s granted to anyone? Yes, in the fully diluted calculation. The reserved but ungranted pool is included on the assumption it will eventually be issued to someone.
Why would a company ever quote a non-fully-diluted percentage? It’s less common and can make an ownership offer look more generous than it will actually be once outstanding grants and the option pool are accounted for, so it’s worth asking which basis any quoted percentage uses.
Does my fully diluted percentage change even if I don’t do anything? Yes. Every new option grant, pool expansion, or funding round changes the denominator, which changes your percentage even though your own share or option count hasn’t moved.
Is fully diluted the same calculation used for a 409A valuation? They’re related but not identical. A 409A valuation determines the value per share, while fully diluted share count is one of the inputs used in figuring out how many shares that total value gets divided across.
What to do next
Your specific fully diluted ownership percentage depends on your company’s actual current cap table, not the example numbers here. You can model your own ownership percentage at movewealth.io.
MoveWealth is not a broker-dealer, investment adviser, or lender. This is educational content, not financial, tax, or legal advice. Consult a qualified professional about your specific situation.