I chatted with a founder about a seed fundraise he’s considering. He wants to raise $2 million. We talked through his thinking, and I realized two things: he didn’t have a great grasp on current market valuations, and he didn’t realize how raising that much capital at today’s lower valuations would dilute his ownership, especially if he continued to raise capital.

I did some back-of-the-envelope math regarding his future round and a few hypothetical rounds after that. It was eye opening to him. He realized that dilution by early and subsequent rounds would have a material impact on his ownership as founder and materially reduce his proceeds if his company were to be sold.

Raising capital is hard right now for early founders. Even if you can raise the amount you desire, it’s worth thinking through how much you need, the current market valuation of your company, and how dilution will affect you. Tools that can help founders understand the dilution impact of fundraising rounds are out there (645 ventures built one). Spending time with one of these tools can help founders quantify the impact of dilution.