Crowdfunding and dilution: how to simulate scenarios before the round

Raising capital through equity crowdfunding accelerates growth, but comes at an unavoidable cost: divest company shares. Opening up the capital to new members, in fact, implies that existing members will see their shareholding percentage reduced: this is the so-called dilution. 

If a capital increase finances business growth, product development, marketing, strategic hiring, or entry into new markets, divesting a portion of shares may make sense. But it must be managed in a way that maintains firm control of the company.

In order not to lose control, it is essential to simulate the cap table first of the round by setting a realistic pre-money valuation and defining a hard cap. 

In our blog you can already find a Theoretical article on dilution of corporate shares. Here we offer you a guide to learn how to simulate the Dilution scenarios in equity crowdfunding To protect the future of your business:

• Calculate the exact impact of a capital increase on your ownership.
• Maintain sound governance to deal with future rounds.
• Structure a clear and institutional investor-proof cap table.

What dilution means in crowdfunding

Dilution is a normal consequence of any venture capital raising. Whenever new members come in through a capital increase, the percentage participation of existing members is reduced because the share capital is spread over a larger base.

In equity crowdfunding, you deliberately decide to give up a piece of your company to the “crowd” of investors to get fresh capital in return.

But dilution is not necessarily a bad thing. The overall value of the company (and thus the absolute value of the remaining share of the founders) grows because of the cash injected. 

Having the 70% of a company worth 2 million is better than having the 100% of a company worth zero.

Let's take an example. Before the round, two founders together own 100% of a company. If the company opens a capital increase and the new investors acquire 20% post-money, the founders will no longer own 100%, but altogether 80%.

However, if they own a company's 80% after the round. more capitalized, with more resources to grow, participation may be smaller in percentage terms but more solid In economic terms.

The question to ask, then, is “is the share I give up consistent with the capital I raise and the growth I can generate?”. 

The psychological threshold of dilution

Many companies approach the issue from a psychological threshold: “we don't want to yield more than 10%” or “beyond 15% is too much.” This is an incomplete approach and not entirely rational.

La percentage sold makes sense only if it is related to three elements:

• The capital that the enterprise wants to raise;
• The valuation attributed to the company;
• the goals that that capital has to fund.

Very low dilution may seem convenient, but it may be ineffective if the amount raised is not enough to support the growth plan. In that case, the company risks ending a formally positive but operationally insufficient campaign. 

We have devoted an article to delving into the new features brought by this regulation, which mostly concern the transparency and investor protection obligations imposed on platforms and the possibility of raising capital abroad as well. An article to the different types of crowdfunding campaign failure, beyond achieving the minimum economic goal.

In contrast, higher dilution may be sustainable if it enables financing of decisive activities: in this case, the share sold should be valued as an investment in the future growth of the company.

Simulate dilution scenarios before opening the campaign is the only way to ensure that the company remains investible for later rounds, especially if you are aiming for professional investors.

Indeed, a professional investor evaluating a subsequent round also looks at how much incentive the founders still have to grow the company. If after multiple rounds their participation has become too low, an alignment problem may arise: do those leading the company still have enough financial stake in its success? 

Pre-money, post-money and capital increase: the essential concepts 

The dilution calculation is based on three interdependent financial metrics: pre-money valuation, post-money valuation and capital increase. 

La pre-money valuation is the value attributed to the company prior to the entry of new capital. In equity crowdfunding, it is the company itself that comes up with this value, but it must be motivated by revenue, margins, growth, market, intellectual property, team, contracts already acquired, commercial pipeline, product usage metrics, or other relevant evidence. 

La post-money evaluation Is the value of the company after collection. It is calculated as follows:

post-money = pre-money + capital raised

The ratio of the capital raised to this post-money valuation will determine the exact percentage of the firm transferred to the new partners.

L'capital increase indicates both the’deed through which the company issues new units or shares to bring in new investors, as well as how much money comes in materially through the financing round.

The higher the collection compared to the post-money valuation, the greater the participation of new members and thus the greater the dilution of existing members.

The pre-round simulation serves precisely to make this relationship visible before setting campaign conditions.

How to calculate dilution in an equity crowdfunding campaign: practical method

Calculating dilution in an equity crowdfunding campaign requires 3 steps:

1. Fixing the pre-money valuation
2. Define minimum and maximum collection target (capital increase)
3. Calculate the dilution

This makes it possible to simulate different scenarios: to see how the company's equity fluctuates in the two edge cases of the campaign.

The basic formula

The share given to new investors is calculated as follows:

capital raised/post-money valuation x 100

Let's take an example:

• pre-money valuation: 2,000,000 euros;
• Capital raised: 500,000 euros;
• post-money valuation: 2,500,000 euros.

In this case, the share of new investors will be:

500,000 / 2,500,000 x 100 = 20%

The existing shareholders, who owned a total of 100% of the company before the capital increase, will own a total of 80% after the new investors join.

It means that any participation is reduced proportionally.

Example:

• founder A before round: 60%;
• founder B before the round: 40%.

After the capital increase:

• founder A: 48%;
• founder B: 32%;
• new investors: 20%.

Minimum target and maximum target: two different scenarios

In equity crowdfunding, it is necessary to define a minimum collection threshold (“unbreakable”) and a maximum threshold. This makes it essential to simulate at least two scenarios: what happens if the campaign closes at the minimum and what happens if it reaches the maximum.

Let us look at an example of scenarios for a company with a pre-money valuation of 2 million euros.

Scenario	Collection	Post-money evaluation	Share of new investors	Current membership share after the round
Minimum goal	300,000	2,300,000 euros	about 13%	about 87%
Maximum goal	700,000	2,700,000 euros	about 25.9%	about 74.1%

The difference is significant. This does not mean that the maximum scenario is worse. It may be the most useful, if that 700,000 euros finances a more solid growth plan. But the enterprise must know this beforehand: it cannot only find out when the campaign is closed that the’overfunding produced a higher dilution than imagined.

Therefore, the maximum threshold should not be set “as high as possible” just to intercept possible extra demand. It should correspond to a plan for the use of funds and a dilution that the company considers acceptable.

Mind you, our example is simplified: the simulation must show the effect of the capital increase on all partners, not just the founders. If business angels, industrial investors, or financial partners have already entered the company, their holdings will also be diluted, unless specific agreements are made.

This point is important because some previous investors might have special clauses: for example, pre-emption rights, information rights, co-sale rights, or anti-dilution mechanisms. These are aspects to be checked with legal and financial advisers before constructing the offer, because they may affect the feasibility of the transaction or the terms to be proposed to the market.

What scenarios to simulate before going online 

Pre-round simulation should not be limited to the calculation of the relinquished share. To be truly useful, it must link three elements: Capital raised, use of funds, and expected results.

The enterprise needs to ask itself: if we raise this amount, what are we actually able to do? And after doing so, will we be in a better position to grow, generate revenue, or open a subsequent round on firmer terms?

That's why it makes sense to build at least Three scenarios: conservative, intermediate and maximum.

Cautious scenario: minimal collection and slow growth

The cautious scenario starts with the most cautious assumption: the campaign only reaches the’minimum target.

This scenario is very useful for verifying that you have set a sensible minimum goal. The minimum goal, in fact, should represent the minimum capital with which the enterprise can implement a concrete piece of its plan.

If the minimum threshold is too low, the risk is closing a formally successful but unprofitable campaign. The enterprise becomes diluted, acquires new members, incurs campaign costs, but does not raise enough to achieve significant results.

The guiding question is simple: whether we collect only the minimum, is the dilution still justified?

If the answer is no, the minimum threshold needs to be rethought. There is no point in opening a capital increase if the minimum capital raised does not allow for measurable advancement.

Intermediate scenario: collection consistent with the business plan

The intermediate scenario is often the most realistic and the easiest to handle. 

It is the scenario in which the enterprise raises enough capital to finance priority activities without pushing itself into excessive dilution. To construct it, one must start with the actual needs.

For example, if the goal for the next 12 to 18 months is to increase sales, the company must estimate what activities are needed to get there: marketing, sales, product development, personnel, consulting, technology, production, logistics. Only then can it define the capital needed.

This scenario should be linked to precise milestones, i.e., intermediate results that demonstrate the progress of the enterprise and allow realistic budgets to be established.

Maximum scenario: overfunding and impact on the cap table

The maximum scenario considers the scenario in which the campaign reaches the upper limit of collection. It is an obviously positive scenario in principle, but should be handled carefully.

In crowdfunding, overfunding can be a signal of strong market interest. However, the extra capital must have a clear destination and the additional dilution Must remain sustainable.

If the company raises a lot of funds without a clear plan, it risks giving away more shares than necessary. This can create problems especially if, in the future, it is necessary to open a new round with professional investors.

In the maximum scenario, one must therefore check:

• How founder quota changes;
• How the share of any existing investors changes;
• If the cap table remains readable;
• Whether the extra capital finances truly useful activities;
• Whether the chosen assessment remains sustainable even when looking at the next round.

L'overfunding should be treated as a planned opportunity, not an unexpected reward. Before going online, the company should already know what it will do if investor demand exceeds expectations.

In some cases, it may be appropriate to close the collection early to avoid excessive dilution, but be prepared to do so.

How to use the cap table to simulate the effects of dilution

We need to add one more step to the three described so far: update the cap table.

La cap table is a table representing the capital structure of the company: who the partners are, what shares they hold, how the percentages change after the capital increase, and what might happen in subsequent rounds. 

It is a decision-making tool for the enterprise because it allows it to immediately see the effect of collection choices before they become final. 

Cap table pre-round

Before setting up an equity crowdfunding campaign, the company should build an updated cap table of the current situation.

The minimum elements are:

• existing members;
• Percentage ownership of each partner;
• Nominal value and economic value of the units or shares;
• Any categories of shares;
• special rights associated with certain holdings;
• Shareholder pacts or relevant agreements;
• Convertible instruments already issued or promised.

This last point is often underestimated. If the company has already issued instruments that can convert into shares, or has agreements that give someone the right to enter the capital in the future, the simulation must take this into account.

Cap table post-campaign

After the 3 scenarios are defined, the cap table should be updated with the entry of new investors in all 3 scenarios.

Here are the steps to be carried out:

1. Enter the capital raised for the considered scenario;
2. Calculate the post-money evaluation;
3. Determine the share due to new investors;
4. Proportionally reduce the dues of existing members;
5. Check the effect on founders, previous investors and other relevant shareholders.

The simulation should be repeated for each scenario: minimum collection, intermediate collection, maximum collection. In this way, the enterprise can compare the real effects of the operation and check that, in the maximum target scenario, the founders maintain a comfortable percentage for future management and funding rounds.

An equity crowdfunding campaign should rarely be considered a one-time event. For many startups and SMEs, it is a stage within a longest path of funding.

Therefore, in addition to the post-campaign scenario, it is also useful to simulate a possible next round.

A messy cap table, too high an initial valuation, or poorly managed dilution can make the next round less attractive, especially if it involves professional subjects.

Simulation is used to avoid short-sighted decisions: harvesting today on terms that seem convenient but make it more difficult to finance growth tomorrow.

Dilution and governance 

When it comes to dilution, many companies overlap two different planes: the percentage of capital transferred and control over business decisions.

These are related issues, but they do not coincide. Giving up a share in the company means reducing the economic participation of existing shareholders. It does not mean, automatically, losing the operational or strategic control of the enterprise. This depends on how the operation is structured: share categories, associated rights, bylaws, shareholders' agreements, and management rules of the corporate structure.

Therefore, before an equity crowdfunding campaign, the dilution simulation should be accompanied by a governance audit.

For more on this topic, read our articles on how to maintain governance, on the shareholders' agreements and on the clauses to be included in the bylaws To regulate relations with crowd members.

Mistakes to avoid in pre-round simulation 

1. Simulate only the percentage ceded

The first mistake is to focus only on the percentage you want to give up.

Saying “we want to offer 10%” may seem like a neat starting point, but it is actually an incomplete choice. First we need to figure out whether the capital raised by selling that share is sufficient to support the growth plan.

2. Inflating the pre-money valuation

The second mistake is to raise the pre-money valuation only to reduce the share offered to investors.

From a mathematical point of view it works: for the same amount of capital raised, a higher valuation means less dilution. From a strategic point of view, however, it can be risky.

First, because any evaluation must be reasoned and credible. 

Second, because over-rating can complicate subsequent rounds. If she does not achieve consistent results in subsequent months, she may be forced to collect at a lower rating in the next round. A down round is problematic because it reduces investor confidence.

3. Overstating the capital raised

The third mistake is to reason about gross collection as if it were all available for the business plan.

An equity crowdfunding campaign involves. costs, which must be considered in estimating the capital that will actually be available for growth after harvesting.

Recommended tools for simulations

You can make these projections with a spreadsheet such as Excel or Google Sheets, but for complex corporate structures there is dedicated equity management software, such as the world leader Carta, which also recently acquired the Capdesk tool, which is popular in Europe.

FAQ - Frequently Asked Questions

What is the average dilution in equity crowdfunding?

According to the most recent data from the Milan Polytechnic's Crowdinvesting Observatory (2025), in non-real estate equity campaigns in Italy, the share of capital offered to investors averaged 8.77%. This figure can be used as a market benchmark, but should not be interpreted as a prescription.

Can I avoid dilution by raising capital?

The only way to obtain funds without surrendering shares (and thus without dilution) is to resort to debt (bank financing, grants calls or lending crowdfunding). The financial structure of the operation, however, is very different and has a significant impact on cash flows.

What is the anti-dilution clause?

This is a legal mechanism built into shareholders' agreements to protect investors. If the company issues new shares in the future at a lower price than the current one (down round), protected investors will receive additional shares for free or at a discount to compensate for the loss in value.

How do SFPs affect dilution?

Participatory Financial Instruments (or SAFEs) raise capital by postponing the actual dilution. The percentage share is calculated and issued only in the future, when a “conversion event” is triggered, typically upon the occurrence of the next round of financing with a priced valuation.