Equity Dilution

Equity Dilution occurs when a company issues additional shares, reducing the ownership percentage of existing shareholders. While dilution doesn’t necessarily reduce the absolute value of a shareholder’s investment, it decreases their proportional claim on profits, voting rights, and exit proceeds.

Dilution typically happens during:

• New equity funding rounds

• Stock option exercises

• Convertible debt conversions

• Mergers and acquisitions

Dilution is a key concern for early investors and employees with stock options, and many financing agreements include anti-dilution clauses to mitigate its effects.