Fully diluted capitalization counts every share that exists plus every share that could exist under instruments already promised: granted options, the unissued option pool, warrants, and convertibles (SAFEs, notes) at their assumed conversion. It answers the only question that matters for ownership: if everything outstanding became common stock today, what fraction would each holder have?
The convention has edges worth knowing. The unissued pool is normally included, which slightly understates everyone’s percentage relative to what exists today but correctly states the post-grant future. Convertibles require an assumption (conversion at cap is standard for planning); a fully diluted table should say which assumption it uses. Expired and forfeited instruments drop out; out-of-the-money options and warrants do not, as long as they are outstanding they stay in the count (moneyness matters for accounting dilution, not for the cap table).
Price per share in a round is set on this denominator: pre-money valuation divided by the fully diluted count before the new money, including the round’s pool increase and the converting instruments. That single mechanic is why the definition of fully diluted gets negotiated in term sheets, and why an oversized pool or an unmodeled SAFE stack quietly lowers the price the investor pays. The founder’s protection is unglamorous: maintain one cap table where every percentage is fully diluted, keep the conversion assumptions written down, and never let two documents in the same data room disagree on the denominator.