Hiring guide
Fundraising dilution: a scenario brief for your fractional CFO
By CFO Index · Published
A funding headline leaves two questions unanswered: how much usable cash reaches the company, and what ownership is left after the new shares are issued? A fractional CFO can prepare a transparent scenario model before you discuss terms. Start with a simple share-count bridge, then have the actual documents and rights checked by your legal and tax advisers.
Separate the company raise from a shareholder sale
British Business Bank describes equity finance as exchanging an ownership stake for capital. For the model, distinguish new shares issued by the company from existing shares sold by a shareholder. In the first case, model the cash entering the company; in a secondary sale, do not count the seller's proceeds as company funding. If an offer includes both, show separate lines. This article's example covers only a new, simple priced issue. It is an arithmetic planning tool, not a recommendation to raise, accept a valuation or offer securities.
Agree the starting share basis before percentages
Use a dated cap table reconciled to the company's records. Record the holders, share classes and issued counts, then list options, warrants and convertible instruments separately. State whether the quoted valuation uses issued shares or an agreed fully diluted basis. Do not insert an option pool or convert a SAFE or loan using a generic formula: those mechanics depend on the documents. Get the responsible advisers to confirm the basis before the CFO presents a scenario as comparable with a real term sheet.
Build the priced-round bridge explicitly
Hypothetical illustration: there are 1,000,000 existing shares, all with identical economic rights, and founders hold 800,000 of them. There are no options, convertibles, pool changes, secondary sales or special rights. An invented offer proposes €4,000,000 pre-money equity value and €1,000,000 of new company investment. For this simplified basis, price per share is €4,000,000 / 1,000,000 = €4. The investor receives 250,000 new shares; the company has 1,250,000 shares after issuance.
| Holder | Shares before | Shares after | Ownership after |
|---|---|---|---|
| Founders | 800,000 | 800,000 | 64% |
| Other existing holders | 200,000 | 200,000 | 16% |
| New investor | 0 | 250,000 | 20% |
| Total | 1,000,000 | 1,250,000 | 100% |
Describe dilution without ambiguous percentages
Founders move from 80% to 64%: a reduction of 16 percentage points, or 20% relative to their starting ownership percentage. They have not sold 160,000 shares in this example; their count stays unchanged and the denominator increases. The simplified post-money value is €5,000,000, and the investor's €1,000,000 / €5,000,000 gives the same 20% result. Use the share-count bridge to check the percentage shortcut. Ownership percentage alone does not establish voting control, board rights or proceeds on an exit.
Compare offers on the same assumptions
Keep the starting share basis fixed. With the same €4,000,000 pre-money value but €2,000,000 of new investment, the investor gets 500,000 shares and founders retain 800,000 / 1,500,000, or about 53.33%. With €1,000,000 invested at an invented €3,000,000 pre-money value, founders retain 60% on the unrounded calculation. Show any rounding and fractional-share treatment as implementation questions, not hidden adjustments. A pool change or instrument conversion needs a separate, adviser-confirmed scenario, not a footnote attached to these simple cases.
Bridge investment to usable company cash
In the first hypothetical offer, assume €50,000 of transaction costs paid from the new cash at closing. Net cash received is €950,000, not €1,000,000; the gross share-issue calculation above still uses the specified €1,000,000 investment. Do not reduce the investment denominator by fees without checking the actual deal mechanics. Put the net receipt on its expected closing date, distinguish committed from conditional tranches and test a delay. A positive ownership scenario does not pay next week's bills if the funding has not closed.
Set a clear boundary for the CFO deliverable
Request a reconciled starting cap table, labelled scenario assumptions, share-count bridge, net-cash schedule and a list of unresolved terms. Check that holder percentages sum to 100%, issued counts reconcile and every scenario uses the same stated basis. Ask legal advisers to validate issuance mechanics, class rights, approval requirements and contractual provisions, and tax advisers to review relevant consequences. Keep exit waterfalls and control questions separate from simple dilution. Completion means you can explain each change and exclusion, not that the deal is fair or legally ready to sign.