FOUNDER'S GUIDE

How $500K Pre-Seed
Flows Through Rounds

Each round funds milestones that unlock the next round at a higher valuation. Here's what happens at each stage — what you give up, what investors get, and what it means for your ownership.

OWNERSHIP AFTER ROUND
You 90%
New 10%
VALUATION
$5M cap (SAFE)
THIS ROUND DILUTION
~10%
TYPICAL INVESTORS
Angels, friends, pre-seed funds
GOAL Build MVP, get first pilots
RUNWAY 12–18 months runway

You raise $500K on a SAFE with a $5M valuation cap. No shares are issued yet — investors get a promise of future equity. You own 100% of issued shares until conversion.

YOUR $500K PRE-SEED INVESTOR'S JOURNEY
Pre-Seed
$500K
~10%
$500K
SAFE — no shares yet
Seed
—
~8%
$960K
SAFE converts, diluted by new round + option pool
Series A
—
~6.5%
$3.1M
Further diluted but value grows 6×
Series B+
—
~5.5%
$8M+
Smaller slice of a much bigger pie
The core tradeoff: Your investor's ownership percentage shrinks every round, but the value per percentage point grows faster. Owning 5.5% of a $145M company is worth far more than 10% of a $5M company. This is why dilution isn't inherently bad — it's bad when valuation doesn't grow proportionally.
THINGS TO REMEMBER
1

SAFEs (pre-seed) = simple, low-cost, no shares yet. Priced rounds (seed+) = real shares, real rights, real governance.

2

Each round's dilution compounds. 10% + 20% + 17% + 17% ≠ 64% dilution. It multiplies: you keep ~45% after all four rounds.

3

Investors in earlier rounds get better prices but take more risk. That's the tradeoff that makes the system work.

4

"Paper value" isn't real money until an exit. Your pre-seed investor's $500K might be worth $8M on paper but they can't spend it.

5

Pro-rata rights let early investors invest more in later rounds to maintain their percentage. This is valuable to them.

6

You don't owe pre-seed investors anything if the company fails. You owe them honesty and good faith effort always.