Dilution
Dilution is something that occurs when more shares are issued, lowering your percentage of ownership in the company.
What is equity dilution?
Equity dilution refers to the decrease in the value and ownership percentage of existing shareholders' stock due to the issuance of new shares. This can happen when a company raises additional capital by issuing new shares, or when employees are granted stock options.
How does Dilution occur?
Dilution occurs when a company issues new shares, increasing the number of outstanding shares, thus decreasing the ownership percentage of existing shareholders. This can happen through various means such as issuing new shares in a funding round, issuing shares as part of an acquisition or merger, or granting stock options to employees.
How does equity dilution affect the value of my existing shares?
Equity dilution can decrease the value of existing shares by diluting the value of each share, as the total value of the company is spread out over more shares. This can decrease the earning per share, and decrease the overall value of the company from the perspective of an investor.
How does equity dilution affect the ownership structure of a company?
Equity dilution can change the ownership structure of a company by diluting the ownership percentage of existing shareholders. This means that existing shareholders own a smaller percentage of the company after new shares are issued.
How can a startup founder minimize equity dilution while still raising capital?
A startup founder can minimize equity dilution while still raising capital by structuring funding rounds in such a way that new shares are issued at a premium to the existing shareholders, or by issuing shares through convertible debt or options rather than equity.
How does equity dilution affect employee stock option plans?
Equity dilution can affect employee stock option plans by diluting the value of the options and the ownership percentage of employees. This can make it harder for employees to gain ownership in the company.
