What is Share Dilution during Funding?

What is Share Dilution during Funding?

?? Learning Venture Capital & Startup Concept Series (Part 2) ????

Super helpful to all the?current & future Entrepreneurs + Finance/ Startup Enthusiasts?!! ??

Some VC job opportunities are mentioned at the end ...

?? How Equity dilution occurs in startups??

Equity is simply the % ownership in a company.

Ex - Suppose A & B are two Co-Founders of a startup X. Let the total shares be 1000 such that A has 700 shares whereas B has 300 shares.

Then A has an equity of 70% whereas B has an equity of 30%.

?? Equity Dilution is the reduction in the equity of the existing shareholders when any new shareholders join.

Ex - Let a new investor C comes into the company and takes a 10% equity in the company.

Then dilution occurs in this way -

A's equity will get diluted by 70% of 10 = 7%

B's equity will get diluted by 30% of 10 = 3%

So, new shareholding would be --

A has 63% (70-7), B has 27% (30-3) & C has 10%.

So the total is again 100% (63+27+10).

?? Amount of dilution is directly proportional to the amount of equity present with a person.

To understand further,

Let another investor D come in next round of funding & takes 20% equity in the company.

Then dilution occurs in this way -

A's equity will get diluted by 63% of 20 = 12.6%

B's equity will get diluted by 27% of 20 = 5.4%

C's equity will get diluted by 10% of 20 = 2%

So, new shareholding would be --

A has 50.4% (63-12.6), B has 21.6% (27-5.4), C has 8% (10-2) & D has 20%.

So the total is again 100% (50.4+21.6+8+20).

This is the most simplified case discussed.

?? There are ways through which Investor C can prevent its equity dilution when Investor D comes using ...

We will discuss them in future posts.

Do comment below with your thoughts about the above ...

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Alexey Navolokin

FOLLOW ME for breaking tech news & content ? helping usher in tech 2.0 ? at AMD for a reason w/ purpose ? LinkedIn persona ?

1 年

Excellent share Madhur Jain

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Charmaine Keegan

Sales Expert, Keynote Speaker, Create a proactive, resilient and motivated high performing team ?Be the Subject Matter Expert, the Trusted Advisor, the Authority in your Field ?200+ LinkedIn Testimonials

1 年

Such an informative post Madhur Jain

Abdul Salam

Sales And Marketing Specialist | Creative Agencies | Online Advertising | Collaboration | Brand Promotion | AI | Content Creator

1 年

Insightful

Ray Price

?? Sales Executive, - CEO Have It Magical, - AI Investor, - Executive Coach, - Real Estate Investor, - Author, - Motivational Speaker, - Philanthropist

1 年

Wonderful share my friend ??

Vinti Agrawal

I help B2B companies with LinkedIn marketing and lead generation

1 年

Thanks for sharing ??

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