Fully Diluted Shares

Quick Definition

The total number of shares that would exist if every option, warrant, and convertible instrument were exercised.

What is Fully Diluted Shares?

Fully diluted shares is the total number of shares that would be outstanding if every convertible instrument converted into equity. That includes stock options (vested and unvested), warrants, SAFEs, convertible notes, and any other right to purchase shares.

This is the number investors use to calculate your ownership percentages. Not issued shares. Not outstanding shares. Fully diluted.

Why Fully Diluted Matters

When an investor says "we want 20% of the company," they mean 20% on a fully diluted basis. If you only look at issued shares, you'll overestimate everyone's ownership and underestimate dilution.

Your cap table should always show fully diluted percentages. Anything else is misleading.

What Gets Included

• Common stock (issued and outstanding)
• Preferred stock (on an as-converted basis)
• Vested and unvested stock options
• Unallocated option pool shares
• Warrants
• SAFEs and convertible notes (at their conversion terms)

Formula

Fully Diluted Shares = Common Stock + Preferred Stock (as-converted) + All Options (vested + unvested) + Unallocated Option Pool + Warrants + Convertible Securities

Ownership % = Your Shares ÷ Fully Diluted Shares

Example

A startup has:

• 6,000,000 common shares (founders)
• 2,000,000 preferred shares (Series Seed investor)
• 1,500,000 granted options (employees)
• 500,000 unallocated option pool

Fully diluted shares = 6M + 2M + 1.5M + 0.5M = 10,000,000

Founder with 4,000,000 shares owns 40% fully diluted, not the 66% they'd calculate looking only at common stock.