Pinion Blog
When Your Numbers Don't Match: How Dilution Quietly Changes Your Investment
The headline markup on a new round is not the same as your position-level markup. Here's how dilution works, why your tracker and the angel club often disagree, and what to do about it.
I was updating my portfolio valuations tonight and noticed something — my numbers didn't match what was being reported by our angel club. Not by a little. Since many people know me for my precision I naturally assumed my math was bad.
The culprit turned out to be dilution. One of our portfolio companies had raised a new round, and the structure of that round had diluted existing investors more than I'd accounted for in my own tracking. The reported valuation increase was real, but my proportional ownership — and therefore my proportional value — was lower than I'd assumed.
Here are the actual numbers from the position that prompted this. We invested $10,000 in a seed round in June 2023 at a $25M post-money valuation. That gave us 0.040% ownership at entry. The company has since raised again, with a current post-money valuation of $91.6M — a 3.66x markup at the company level.
But our ownership has been diluted from 0.040% to 0.026% in the process. Our $10,000 position is now marked at $23,577 — a 2.36x markup. The company marked up 3.66x; our position marked up 2.36x. The gap is roughly 35% of our original ownership, which is sitting in shares issued to new investors and (hopefully) to an expanded option pool.
This is a perfectly normal, healthy outcome — the company is up meaningfully, our position is up meaningfully, and the dilution is the price of the company having access to growth capital. But "the company is up 3.66x" and "our position is up 2.36x" are different statements, and only one of them is the right answer to "how is this investment doing?"
This is worth a short piece because it's one of those things that's obvious in hindsight but easy to forget, especially when you're tracking a portfolio across multiple deals over multiple years. The headline numbers from a new round is the part I get excited about, but are not the same thing as my individual outcome. Sometimes they diverge meaningfully and tracking it is critical.
The basic mechanics
When a startup raises a new round, new shares are issued to the new investors. Those shares come from somewhere — they don't appear out of thin air. They're created, which expands the total share count, which means every existing shareholder now owns a smaller percentage of a larger pie.
The expectation, in a healthy round, is that the pie grows fast enough that your slice — even though it's a smaller percentage — is worth more in absolute dollars. That's the markup. But the markup multiple on the company's valuation isn't the same as the markup on your individual position, because your share of the company shrank in the process.
Two scenarios make this concrete.
Scenario 1: A clean priced round
Say you invested $50,000 at a $5M post-money valuation. That gave you 1.0% of the company at entry.
The company now raises a $5M Series A at a $25M post-money valuation. The new investors are putting in $5M for $5M / $25M = 20% of the company. Existing shareholders, including you, are diluted by that 20%. Your 1.0% becomes 0.8%.
What's your position worth now? At the new $25M post-money valuation, 0.8% is worth $200,000. So your $50,000 investment is now marked at $200,000 — a 4x markup.
But here's where the math gets interesting. The company's valuation went from $5M to $25M, a 5x markup at the company level. Your position only marked up 4x, because you absorbed your share of the dilution. The reported "5x round" is not your 5x.
Scenario 2: A larger round with an option pool top-up
The previous example assumed a clean dilution event. In practice, most priced rounds also include an option pool top-up, which expands the share count further before the new money comes in.
Same starting position: you invested $50,000 at a $5M post-money valuation, owning 1.0%.
The company raises a $10M Series A at a $30M post-money valuation, but the term sheet requires a 10% option pool top-up done pre-money — which means the option pool expansion dilutes existing shareholders, not the new investors.
Walking through the math:
- Pre-money valuation: $20M (target $30M post minus $10M new money)
- Option pool of 10% post-money is created from pre-money shares: this dilutes existing shareholders by ~10%
- Then the new investors come in for $10M / $30M = 33.3% of the company
Your 1.0% gets diluted by both events. After the option pool: roughly 0.9%. After the new round: roughly 0.6%.
At the new $30M valuation, 0.6% is worth $180,000. So your $50,000 investment marked up 3.6x — even though the company itself went from $5M to $30M, a 6x markup. The headline number says 6x. Your position marked at 3.6x. The gap is the option pool expansion plus your share of the new round dilution.
This is the kind of thing that catches investors off guard, because option pool top-ups are often buried in the round mechanics and aren't always reported clearly in update emails.
Scenario 3: A down round or recap
This is the painful version. Same starting position: $50,000 at a $5M post-money for 1.0%.
The company struggles, runs low on cash, and raises a $3M bridge at a $6M post-money valuation. The new investors are putting in $3M for $3M / $6M = 50% of the company. Your 1.0% becomes 0.5%.
At the new $6M valuation, 0.5% is worth $30,000. Your $50,000 investment is now marked at 0.6x — underwater, despite the company technically still having a positive valuation.
If the round includes a participating preferred liquidation preference or anti-dilution adjustments for the prior investors (full ratchet or weighted average), the math gets considerably worse for common shareholders and earlier preferred holders without protections. Down rounds are where the gap between “the company is still worth something” and “my investment is still worth something” becomes the widest.
Why your tracker disagrees with the angel club
Your angel club or syndicate usually has an information advantage on the outcome side of this calculation. They typically know the actual number of shares the club or SPV is holding and the current share price from the latest round documents. They may not show you the dilution math step by step, but they don't have to — they're reporting what the holding is worth based on real share counts, which is the same answer the math would give you if you ran it yourself.
So if your number disagrees with theirs, the gap is often on your side. You may be applying a simple markup based on the headline valuation change, without working through how the new round actually affected your ownership percentage. The club's number reflects shares × price; your number may reflect a percentage you assumed didn't change.
Your own tracker, if you're doing it carefully, should account for:
- Your starting ownership percentage at original issuance
- Each round's effect on that percentage (new money dilution, option pool top-ups, anti-dilution adjustments if applicable)
- Your current ownership percentage applied to the new post-money valuation
When you and the angel club agree, you've cross-checked the answer from two directions — they have shares and price, you have ownership and valuation, and both should produce the same dollar figure. When you disagree, the club's number is usually a good place to start, and the work is figuring out which step in your own math missed the dilution event.
What to do about it
A few practical habits that come out of this:
Read the round documents, not just the announcement email. The press release will give you the post-money valuation. The actual SAFE conversion docs, term sheet, or stock purchase agreement will tell you the option pool size, the new money amount, and any structural terms (anti-dilution, liquidation preferences, pay-to-play) that affect your position.
Track ownership percentage, not just dollar value. Your ownership percentage is the durable number. The dollar value is just your percentage applied to the latest valuation. If you're only tracking dollar values, you'll lose the thread on dilution events that don't immediately show up in the headline number.
Ask about anti-dilution and option pool mechanics during diligence. When you're writing the original check, the terms that determine how you'll be diluted in future rounds are already in the documents. Pro rata rights, anti-dilution protections, and pay-to-play provisions all affect how you'll fare when the company raises again. The time to ask about these is at the start, not at the next round — and your CPA should be part of that conversation from the beginning.
Update your numbers from primary sources, not secondary reports. Where possible, work from the company's actual cap table updates, the round documents, and your own ownership records. Reports from the angel club or syndicate are useful as a sanity check, but they're a derived view — your own math, done carefully, is the source of truth for your position.
The takeaway
Dilution is the normal mechanic of how startups raise money, not a bug. Every priced round will dilute you, and that's fine — the whole point is that the pie grows faster than your slice shrinks. The trap is assuming that the headline markup at the company level is the same as your individual outcome from that round, when the two numbers can diverge meaningfully depending on round structure.
When your tracker doesn't match the report from your angel club or syndicate, it's worth digging in. Sometimes you'll find a math error somewhere. More often, you'll find a structural detail — an option pool top-up, an anti-dilution adjustment, a term you didn't catch the first time — that explains the gap. Either way, the exercise of working through it is how you keep your portfolio numbers honest, and how you avoid the surprise of finding out years later that a "3.66x company" was actually a 2.36x position.
Track your position through every round
Dilution compounds silently across rounds, and a simple markup-based tracker will miss it every time. Request access to Pinion — the portfolio tracker built for active angels and small family offices, designed to keep ownership percentages accurate through every priced round.