Dilution
Equity Dilution for Founders and Employees
Dilution reduces the percentage of a company each shareholder owns whenever new shares are issued. Understanding the mechanics helps founders and employees judge whether a lower percentage still means growing value.
Dilution explained round by round
Equity Dilution
Equity dilution happens when a company issues new shares, reducing the percentage owned by existing shareholders even though the number of shares they hold stays the same.
Share Dilution
Share dilution is calculated by comparing your shareholding before and after new shares are issued, using the fully diluted share count on both sides.
Founder Dilution
Founders typically go from owning 100% at incorporation to a much smaller percentage after several funding rounds, as investors and employees are issued shares.
Employee Dilution
Employees holding options or shares are diluted by new funding rounds and pool top-ups in the same way founders are, though the impact depends on when their grant was made.
Option Pool Dilution
Option pool dilution is the reduction in ownership percentage caused specifically by reserving new shares for an employee option pool, separate from dilution caused by investor shares.
Dilution After Funding
Dilution after funding compounds across each round a company raises, so modelling several rounds ahead gives a realistic view of eventual founder and employee ownership.
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