Maximum acceptable dilution method

The maximum acceptable dilution method derives a pre-money valuation from the amount founders want to raise and the maximum dilution rate they are willing to accept, rather than from an intrinsic analysis of the company's value.

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The formula used is: Pre-money valuation equals the amount raised divided by the maximum acceptable dilution rate. For a CHF 1,500,000 raise at 20% maximum dilution, the resulting pre-money valuation reaches CHF 7,500,000, with 250,000 new shares issued against one million shares outstanding before the round.

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This logic runs almost in reverse of an Option pool shuffle: where the latter dilutes existing shareholders without touching the headline valuation, the maximum dilution method instead sets the valuation based on a dilution tolerance fixed upfront by the founders alone, independent of any market-based estimate.

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This method is above all a founder-side negotiation tool, to be systematically checked against market methods such as the Berkus method or the Scorecard method (Bill Payne): a valuation anchored solely on founders' dilution tolerance can diverge significantly from what an investor would actually be willing to pay, a gap to anticipate before any financial structuring of a round, documented in our article on the cost of fundraising advisory.