
Understanding Dilution: A Guide for Startup Founders
Dilution, in the context of fundraising and venture capital investments, is a fundamental concept that every startup founder should grasp.
At its core, dilution refers to the reduction of ownership percentage or equity stake in a company when new investors, such as venture capitalists or angel investors, inject capital into the business in exchange for equity shares. It’s akin to slicing a pie; as more slices are added, each individual slice becomes smaller. For startup founders, understanding dilution is paramount because it directly impacts their control over the company and their ultimate share of potential future profits.