Angel investors
How can an angel model dilution across later rounds for a hardware startup?
a hardware startup: Model dilution as a change in ownership under explicit assumptions.
Model dilution as a change in ownership under explicit assumptions. Later issuance, option pools, convertibles, and participation can affect the result. A percentage is not a forecast of value, proceeds, or the terms of a future round.
Start with the decision
Start with a simplified cap table, show each assumed issuance, and label what the model excludes. Compare participation and nonparticipation only as educational scenarios. Use the actual documents and qualified counsel for a real cap-table analysis.
The illustrative scenario
This is an educational workbook. The company or fund and all numerical inputs below are fictional. They are not ADIN results, customer claims, market benchmarks, or a forecast.
The fictional team has a working prototype of a monitoring device and early customer trials. Component purchases, assembly, testing, and field support must be funded before units become recurring revenue or repeat orders.
A prototype bill of materials omits some production costs. Yield, rework, inventory, shipping, and warranty assumptions can materially change the cash needed for delivery.
A simplified priced-round and cash comparison
Assume a fictional priced equity round of $4,000,000.00 at a pre-money value of $15,000,000.00. A $40,000.00 check divided by the simplified post-money amount produces 0.211% ownership. If a later issuance reduces existing holders by an assumed 23%, that interest becomes 0.162% without participation.
The exercise omits option pools, convertibles, preferences, fees, side agreements, and other actual terms. It is not a SAFE conversion model or a recommendation to invest or preserve ownership. Actual cap-table and document analysis belongs with qualified advisers. A percentage of ownership does not specify eventual proceeds or protect against total loss.
The fictional company's $1,200,000.00 of cash divided by $125,000.00 of monthly use gives 9.6 months under a constant-use assumption. Compare a shipped, functioning unit with a laboratory demonstration. Keep gross margin arithmetic separate from the working capital needed before collection. Connect that simple quotient to dated obligations and milestones before drawing a conclusion about financing needs or progress.
| Item | Illustration |
|---|---|
| Assumed pre-money value / round size | $15,000,000.00 / $4,000,000.00 |
| Fictional investor check | $40,000.00 |
| Simplified initial ownership | 0.211% |
| Assumed later dilution | 23% |
| Ownership without later participation | 0.162% |
| Cash / constant monthly use | $1,200,000.00 / $125,000.00 |
Use this worksheet
Answer the questions with a source, date, owner, and next action. Mark an unknown as unknown. Use public or permissioned information and involve a qualified specialist when a question requires expertise beyond the team’s competence.
- What is the starting ownership?
- Which issuance is assumed?
- Does the holder participate?
- What instruments are omitted?
- Who checked the actual cap table?
Questions specific to this scenario
- Which costs are quoted versus assumed?
- What happens when yield falls?
- Who supports failed field units?
Request supplier quotes, prototype and production cost distinctions, test results, customer trial evidence, and a cash schedule that includes inventory timing.
A concrete next test
Compare the prototype cost list with a hypothetical small production batch. Ask which supplier quotes are current and where yield, rework, shipping, or field support enter the cash plan. Keep working capital timing separate from a per-unit margin calculation.
Interpret the result
A dilution model helps explain mechanics and dependencies. It does not establish that maintaining ownership is desirable or affordable, and it should not disguise unknown future financing terms as facts.
Compare a shipped, functioning unit with a laboratory demonstration. Keep gross margin arithmetic separate from the working capital needed before collection.
Sources and method
These primary resources provide background for the concepts. The fictional scenario, calculations, and worksheet are ADIN educational examples; the sources do not report or validate those invented results. Reviewed October 11, 2026.