Dilution

Your ownership percentage shrinking as new shares are issued

What it is

Dilution is the drop in your ownership percentage when a company issues new shares. If you own 10% and the company creates a big batch of new shares for investors or employees, your slice of the now-larger pie shrinks even though your share count is unchanged. It is a normal cost of raising money.

Why it matters

Every founder and early employee gets diluted across rounds; understanding it is the difference between owning 5% or 0.5% at exit. Investors care because pro-rata rights and anti-dilution clauses exist specifically to manage it.

Resources

Y Combinator library

ycombinator.com

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