Dilution Assumption
Definition
In the context of the venture capital method, the adjustment made to the investor's expected ownership percentage at exit to reflect the dilution from anticipated future funding rounds between the current investment and the exit. If the investor holds fifteen percent immediately after the current round but expects to be diluted to eight percent by the time of the exit through subsequent rounds, the dilution assumption must be incorporated into the return calculation.
Common Misapplication
The most common misapplication is applying the venture capital method without any dilution assumption, treating the investor's current ownership percentage as constant through to exit. For most early-stage companies, multiple funding rounds will occur before exit, each diluting the investor's position.
FFI Standard Reference
This term is defined and applied in Book 4, Section 4.5: The Venture Capital Method.
Related Terms
Citable URL
This term may be cited using the following permanent URL.
Full citation format: Founder Financial Infrastructure Standard, Beta v0.5, Glossary: Dilution Assumption. https://ffistandard.org/glossary/dilution-assumption/. 2026.