Fully Diluted Shares
The total share count assuming exercise or conversion of all outstanding options, warrants, convertible securities, and reserved but unissued option pool shares.
Definition
Fully diluted shares represent the total number of shares of common stock that would be outstanding if every outstanding convertible security (preferred stock, convertible notes, SAFEs), option, and warrant were exercised or converted, and every share reserved in the option pool but not yet granted were issued. Fully diluted share count is the denominator used to calculate price per share in a priced round and is central to determining pre-money and post-money valuation, since the same headline pre-money number produces a materially different price per share (and founder dilution) depending on whether the option pool used in the calculation is measured pre-financing or post-financing.What this means in practice
In MedTech financings, fully diluted counts often include large unallocated option pools reserved for future hires (clinical, regulatory, and quality personnel needed as the company scales toward a pivotal trial or commercial launch), plus warrants issued to venture debt lenders or equipment lessors. Founders should always ask whether a quoted valuation is calculated on a fully diluted basis and, if so, what assumptions were used for the option pool size.Examples
- A company has 8,000,000 founder shares, 1,500,000 granted options, a 1,000,000-share unallocated pool, and a convertible note that will convert into 500,000 shares. Fully diluted shares = 8,000,000 + 1,500,000 + 1,000,000 + 500,000 = 11,000,000, even though only 9,500,000 shares are currently issued and outstanding.
- At a $30,000,000 pre-money valuation with 15,000,000 fully diluted shares, price per share is $2.00. If the investor instead insists on adding a new 2,000,000-share option pool into the pre-money calculation, fully diluted shares become 17,000,000 and price per share drops to $30,000,000 / 17,000,000 = $1.76, increasing founder dilution even though the pre-money number is unchanged.
- •Comparing valuations across term sheets without confirming both use the same fully diluted definition; one term sheet may exclude the unallocated option pool while another includes it.
- •Ignoring warrants issued to a venture debt lender when calculating fully diluted shares, which understates dilution for existing holders.
- •Assuming outstanding convertible notes convert at face value into a fixed share count; the actual conversion price (and resulting share count) depends on the valuation cap, discount, and round price at conversion.
Frequently asked questions
Related terms
Grouped by themeEditor's picks
· Hand-selected related conceptsLedger of all securities issued by a company and who owns them.
Reduction in existing shareholder ownership when new shares are issued.
Shares reserved for issuance to employees as stock options.
Company valuation immediately before new money is invested.
More in Investment & Finance
· Same categoryAn independent fair-market-value appraisal of common stock used to set tax-compliant strike prices for employee stock options.
Adjustment that protects investors if the company raises a future round at a lower price.
The governing body elected by stockholders that oversees management, approves major corporate actions, and typically includes investor-designated seats after venture financing.
Interim financing between priced rounds, usually convertible.
Where this term appears across MedTech Terms.
Sources
3 sourcesEvery citation below opens the original document. Each is graded against our source-tier hierarchy so you can see what rests on binding law versus commentary.
- 1Investor.gov: Fully Diluted BasisTier 2 UncheckedSEC Investor.govinvestor.gov
- 2NVCA Model Certificate of IncorporationTier 4 VerifiedNVCAnvca.org
- 3PitchBook - MedTech CoverageTier 4 VerifiedPitchBookpitchbook.com
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