Explainer
Dilution
The shrinking of an ownership percentage
What happens to your ownership share when a company issues new shares.
When a company creates new shares, for example in a funding round or to grant employee options, each existing share represents a smaller percentage of the company.
Dilution is not automatically bad. If the new money helps the company grow, a smaller slice of a bigger pie can be worth more than a larger slice of a small one.
It becomes a problem when new shares are issued at a lower valuation or too frequently, shrinking returns for earlier holders.
Illustrative explainers. Figures in examples are hypothetical.