Startup Vocabulary

Dilution 3

Dilution

Reading Time: 1 minute Equity dilution works when the same pie is divided among more people. The founder of a company starts by owning all the shares representing ownership of the company. Over time, other people receive pieces of equity in exchange for work (employee stock options), money (seed, angel and venture investors), or services (attorneys, directors, etc.) Because the total percentage of equity will always equal exactly 100%, every time anyone gets another piece, by definition it “dilutes” all of the previous equity holders.