Full Definition
Dilution occurs when a company issues new shares, reducing the ownership percentage of existing shareholders. While each shareholder owns a smaller percentage of the company after dilution, the value of their shares may increase if the new investment raises the company's overall valuation.
Types of Dilution
- Ownership Dilution: Reduction in percentage ownership (always happens with new shares)
- Value Dilution: Reduction in per-share value (happens in down rounds)
- Economic Dilution: Reduction in the economic value of existing shares
Typical Dilution by Round
- Pre-seed: 5-15% dilution
- Seed: 15-25% dilution
- Series A: 20-30% dilution
- Series B: 15-25% dilution
- Each subsequent round: 10-20% dilution
After multiple rounds, founders typically retain 10-30% of the company at IPO. The key is ensuring that while your percentage shrinks, the overall pie grows large enough to make the smaller slice more valuable.
Founder Ownership Through Funding Rounds
Real-World Example
A founder who owns 100% pre-funding owns 75% after giving 25% to Series A investors. If the company is now worth $20M, their 75% is worth $15M.
Frequently Asked Questions
How much dilution is normal per funding round?
Is dilution bad for founders?
How can founders minimize dilution?
Related Terms
A spreadsheet showing the equity ownership, dilution, and value of shares in a company.
Protection for investors that adjusts their equity if the company raises money at a lower valuation.
A funding round where a company raises capital at a lower valuation than its previous round.
Ownership interest in a company, represented by shares of stock.
A reserved percentage of shares set aside for future employee stock options and equity grants.
Investor Outreach Template Pack
Get our proven email templates, pitch frameworks, and investor research guides — used by 1,000+ founders.
- Cold email templates that get 40%+ open rates
- Follow-up sequence frameworks
- Investor research checklist