Dilution

Definitions

1. The reduction in existing shareholders' ownership percentage when new shares are issued in a funding round. Each round typically dilutes founders by 15-25%. After three rounds, do the math and weep.

   In plain English: When a startup raises money by selling new shares, everyone's existing ownership percentage gets smaller — like adding water to juice.

2. Anti-dilution provisions protect early investors from dilution in down rounds. Full ratchet anti-dilution reprices all previous shares to the new lower price — devastating for founders. Weighted average anti-dilution is more founder-friendly, adjusting based on how much new money comes in.

   Example: 'After the Series C, the founders owned 12% of the company. Four rounds of dilution turned their 100% into a minority stake — but 12% of a $500M company is still $60M.'

   Source: anti-dilution mechanics

Related Terms

• Vesting
• Cap Table
• Cliff
• Cliff
• Cap Table
• Convertible Note
• Double Trigger
• Employee Option Pool
• Equity Dilution
• Equity Financing
• Initial Coin Offering
• Management Buyout
• Anti-Dilution
• Pre-Money Valuation
• Preferred Stock
• Pro Rata
• SAFE Convertible Note
• Valuation Cap