Startup founders, co-founders, and early-stage entrepreneurs planning to raise investment or grant employee equity.
Readers will gain insights on dilution mechanics, when it's value-creating, normal benchmarks, protection strategies, and tools like cap tables to make smarter equity decisions.
Key Takeaways
Dilution reduces ownership percentage when new shares are issued, but can be beneficial if company value grows more than the dilution.
Typical dilution: 10-20% in seed, 20-25% Series A; founders end with 10-30% at exit, but 15% of €50M > 100% of nothing.
Ownership dilution ≠ economic dilution; focus on absolute value increase.
Option pools dilute founders first; create pre-investment. Track liquidation preferences and convertibles for true impact.
Strategic dilution accelerates value: raise needed capital at fair valuations, model cap tables, ask if worth it.
Dilution happens when your company issues new shares and your ownership percentage decreases. You still own the same number of shares, but they represent a smaller slice of the company. Think of it like a pizza - you own half, someone adds more pizza, your slices are now less than half.
Is dilution always bad?
No, dilution can be good if it increases your company's value. Owning 25% of a €2 million company beats owning 50% of a €500,000 company. Dilution becomes bad when your slice is worth less than before, like issuing shares too cheaply.
How much dilution is normal?
Seed rounds typically dilute founders by 10-20%. Series A takes another 20-25%. Employee option pools usually account for 10-20% before each round. By exit, founders often own 10-30% of the company they started.
What is the difference between ownership and economic dilution?
Ownership dilution means your percentage decreases. Economic dilution means the value of your shares decreases. You can have ownership dilution without economic dilution if company value increases, e.g., 50% of €1M to 40% of €3M worth €1.2M.
How can founders protect against dilution?
Pre-emption rights let you buy new shares to maintain percentage. Anti-dilution provisions protect investors but understand terms. Vesting schedules ensure equity earned over time. Create option pools before investment so investors share the dilution.
