Ownership percentage reduction from share issuance
Dilution occurs whenever a company issues new shares to anyone, whether an investor, a new employee exercising options, or a new co-founder. Your own share count does not fall, but the total number of shares outstanding rises, so your share of the company shrinks proportionally, the same effect quantified precisely on the share dilution page.
The formula is simple: new ownership percentage equals your existing shares divided by the new total share count after issuance. If you hold 1,000,000 shares out of 10,000,000, you own 10%. If the company issues 2,500,000 new shares to an investor, the total becomes 12,500,000, and your stake becomes 1,000,000 divided by 12,500,000, which is 8%, a pattern that repeats and compounds as tracked under founder dilution.
Ownership decline across successive funding stages
| Stage | Your shares | Total shares | Your % |
|---|---|---|---|
| At incorporation | 1,000,000 | 1,000,000 | 100.0% |
| After seed round | 1,000,000 | 5,000,000 | 20.0% |
| After Series A | 1,000,000 | 8,000,000 | 12.5% |
Your percentage falls at each stage, but if the company's value rises faster than your percentage falls, the value of your stake still increases, which is easiest to see by working through a full cap table example.
Comparing percentage stakes to absolute cash value
A smaller slice of a much bigger pie is often worth more than a larger slice of a small one. If a 20% stake is worth 200,000 at a 1,000,000 valuation, and later a diluted 12.5% stake is worth 1,000,000 at an 8,000,000 valuation, the dilution has still left you better off in absolute terms, even though your percentage fell.
Questions on why ownership percentages shrink
- Does dilution reduce the number of shares I own?
- No. Dilution reduces your percentage ownership because the total number of shares increases; the number of shares you personally hold stays the same unless you sell them.
- Is dilution always bad for founders?
- Not necessarily. Dilution that comes with funding used to grow the company can increase the value of a founder's smaller percentage over time.
- Can I calculate my future dilution before a round closes?
- Yes, using the pre-money valuation, the new investment amount, and any option pool top-up, you can model the resulting share count and your new percentage before the round is signed.
General information for founders, not legal or tax advice. Thresholds and rates change, so confirm the current position with an adviser in the relevant country before granting.