Dilution
The reduction in existing shareholders’ ownership percentage when new shares are issued.
Each funding round or option grant issues new shares, shrinking the percentage owned by existing holders even though the company’s total value may rise. Founders accept dilution in exchange for capital. Managing dilution means raising the right amount at the right valuation and using tools like option pools and pro-rata rights thoughtfully.
Examples
Two founders owning 50% each drop to 40% after selling 20% in a seed round. — An option pool top-up dilutes all shareholders proportionally.
How it relates to The Startup Foundry
Understanding dilution helps you decide how much to raise. The Foundry’s Learn/Improve modules cover round structuring so you protect ownership while staying investable.