What does fully-diluted capitalization mean?

August 17, 2008

“Fully-diluted” capitalization typically includes (1) all outstanding common stock, (2) all outstanding preferred stock (on a converted to common basis), (3) outstanding warrants (on an as exercised and as converted to common basis), (4) outstanding options, (5) options reserved for future grant, and (6) any other convertible securities on an as converted to common basis.

The concept is what number of shares is already “spoken for.”

Authorized, but unissued stock, is not counted in the fully-diluted capitalization number.


  • Sbreak

    [Speaking from the perspective of a person currently reviewing an offer letter from a startup]

    Shouldn't authorized, but unissued stock be counted in the fully-diluted cap #? If not, then in situations where there are sizable amounts of authorized, but unissued stock, how is the prospective employee to accurately evaluate options being offered to him/her if he/she doesn't know that #?

  • http://www.startupcompanylawyer.com Yokum

    @Sbreak – No. Unissued stock is not part of the fully-diluted calculation. I suppose one needs to assume that if the employee is diluted by future issuances, other people would also be diluted, which would be enough of a check and balance to make sure future dilution is not arbitrary.

  • Mr.Moon

    Should warrants and options that are not yet “in the money” still be included in the fully diluted number of shares?