Fully Diluted
A calculation that includes all outstanding shares plus all potential shares from options, warrants, and convertible securities.
Definition
Fully diluted ownership accounts for all shares that would exist if every stock option, warrant, convertible note, and other security that could be converted into common stock was actually converted. This provides the most conservative view of ownership percentages.
Components of Fully Diluted Calculation
Outstanding Shares
Currently issued common and preferred shares
Employee Options
All granted stock options, vested and unvested
Option Pool Reserves
Unallocated shares reserved for future grants
Convertible Securities
Convertible notes, SAFEs, warrants
Why Fully Diluted Matters
- True Ownership: Shows realistic ownership percentages after dilution
- Valuation Accuracy: More accurate per-share valuations
- Investor Protection: Prevents surprises from hidden dilution
- Employee Equity: Fair assessment of equity compensation value
- Exit Planning: Accurate modeling of exit scenarios
- Fundraising: Standard metric used by investors
Calculation Example
Example Company Fully Diluted Calculation:
- • Outstanding shares: 1,000,000
- • Employee options: 150,000
- • Option pool reserve: 50,000
- • Convertible notes: 100,000 (when converted)
- • Total fully diluted: 1,300,000 shares