Valuation, which is the value of your enterprise, and dilution, which refers to how much of your company you have sold, are critical concepts in fundraising.

Convertible notes complicate the understanding of dilution because you haven't actually sold equity yet, making it hard to determine the real dilution impact until later funding rounds.

It's crucial for founders to understand their dilution when raising money through SAFEs or convertible notes, as they may end up owning significantly less of the company than expected after a priced round.

Investors should exercise their pro-rata rights to maintain their ownership percentage during subsequent funding rounds, as early investors can face significant dilution otherwise.

Model out a Series A with expected dilution between twenty and thirty-five percent for founders. I prefer a dilution of twenty to thirty-five percent for founders after two funding rounds, as anything less than fifteen to twenty percent equity may not motivate them enough to work towards a successful exit.

Understanding the mechanics of dilution and cap tables is essential for founders to navigate the fundraising process effectively. I hope this will not be anything new to you as we discuss raising money on post-money SAFEs and what happens as you hire people and issue equity to employees.

The introduction of post-money SAFEs simplifies understanding dilution by clarifying how much of the company founders have sold to investors after all SAFEs have converted.

When a company raises money on a post-money SAFE, the founders should understand that they have sold 15% of the company, which means they can no longer own 100% of it.

When a company is part of a conglomerate, it often suffers from a conglomerate discount, where the individual businesses are valued less than if they were standalone entities.