Equity Dilution

Category: finance

The decrease in ownership percentage for existing shareholders that occurs when a company issues new shares.

Every time a company raises capital, they print new shares. If you owned 10% of the company before the round and the company prints enough shares to raise money, your 10% slice of the pie might shrink to 8%. Founders must learn to accept dilution as the cost of the capital required to scale.

Common Examples

• We calculated that the new $5M funding round would cause a 15% dilution for the existing management team, which the board deemed acceptable for the growth runway.
• Smart founders constantly track their ownership percentage, ensuring that they don’t get diluted down to the point of losing board control.