at a high-level i agree with the post, however practically speaking, you're overlooking several significant issues: 1) diff between preferred vs common shares 2) liquidation preferences in terms sheets 3) supply/demand for investor capital in the market 4) competitive position of VC/company in the market 5) exit targets / preferences / restrictions by investors / entrepreneurs

these 5 factors (& many others) have DRAMATIC impact on the 1/(1-n) calculation you mention. while i don't disagree with you in theory, practically applied the outcomes matter a fuckload.

see leo dirac's presentation on term sheet liquidation preferences for just one perspective on this: http://www.embracingchaos.com/2007/08/vc-term-sheets-.html - dave mcclure http://500hats.typepad.com/