Dilution
Definition
Dilution: Dilution occurs when a company issues new shares, reducing existing shareholders' ownership percentage. In each funding round, founders and early investors get diluted as new investors receive equity. Understanding dilution is crucial for planning fundraising strategy and maintaining meaningful ownership.
Example Usage
“After three funding rounds, our founders went from 100% to 35% ownership due to dilution.”
Common Misconceptions
Related Terms
Valuation
Valuation is the estimated worth of a company at a given point in time. Pre-money valuation is the company's value before receiving new investment, wh...
Cap Table
A capitalization table (cap table) is a spreadsheet or database showing the equity ownership of a company, including shares held by founders, employee...
Term Sheet
A term sheet is a non-binding document outlining the key terms of a proposed investment, including valuation, investment amount, board composition, li...
Option Pool
An option pool is a portion of company shares reserved for future employee equity grants. Investors typically require a 10-20% option pool before inve...
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