Equity Dilution
Understanding Your Ownership Stake
Definition
Dilution occurs when a company issues new shares, reducing the percentage ownership of existing shareholders. In venture capital, dilution happens each time you raise a new funding round.
In Simple Terms
Imagine you own 100% of a pizza. When you bring investors in, you have to share slices with them. Even though you still have the same size slice, your percentage of the whole pizza shrinks—that's dilution.
Why It Matters
Every funding round dilutes founder equity. Understanding dilution helps you plan for future rounds, negotiate better terms, and maintain meaningful ownership throughout your company's growth. Most founders end up owning 10-20% after multiple rounds.
Example
You own 60% before Series A. You raise $2M at a $8M pre-money valuation, selling 20% of the company. After the round: you own 48% (60% × 80%). After Series B sells 25% more: you're down to 36% ownership.