A startup's fully-diluted capitalization is an attempt to capture the maximum number of shares of common stock a startup will have outstanding, which usually assumes the conversion of all preferred stock into common, the exercise of all outstanding options, warrants, and other securities with a right to acquire shares have been exercised, and shares reserved for the option pool have been issued. An important difference between a company's fully-diluted shares and outstanding shares is that the latter does not count shares reserved for the option pool.
However, it's important to be aware that there is no single definition of fully-diluted capitalization. Its meaning can and does shift based on the context in which it is used. For example, when fully-diluted capitalization is being calculated in connection with the acquisition of a startup, unissued shares reserved for the option pool would be excluded from the calculation, as startups typically don't issue equity following an acquisition.
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