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Dilution

Also known as: equity dilution, ownership dilution

The reduction in your ownership percentage that happens when a company issues new shares, typically to raise money or grant options.

What it is

Dilution is the drop in each existing shareholder's ownership percentage when a company creates and issues new shares. Your share count may stay the same, but it represents a smaller slice of a larger pie.

Facts

Issuing new shares to investors, expanding the option pool, and converting SAFEs/notes all dilute existing holders.
A typical priced seed or Series A round sells roughly 15-25% of the company.
Option pools are often created or topped up to 10-20% and usually come out of the founders' share pre-money.
Owning a smaller % of a much larger, more valuable company can still increase your absolute value.

Who it's for

Every founder who raises capital or grants equity to employees and advisors.

How it helps you

Understanding dilution lets you decide how much to raise and at what valuation, and to model your ownership through to exit.

Caveats

The biggest hidden dilution is the pre-money option pool 'shuffle', which lowers the effective valuation. Model conversions of all SAFEs/notes together, not one at a time.

Conclusion

Dilution is the price of capital and talent; aim to maximize the value of your remaining stake, not just minimize the percentage you give up.

How it helps you

Every raise and every option grant shrinks your slice, so model the fully-diluted cap table before you sign, not after.

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