Understanding Startup Dilution

Dilution is what happens to your ownership percentage when new shares are issued. It’s the central mechanic of every fundraising round.

The basic math

If you own 80% of a company and raise a round where investors take 20%, your ownership becomes 64% — not 60%. The dilution applies proportionally across the existing cap table.

Why dilution isn’t bad

Founders sometimes treat dilution as a loss. It isn’t — it’s a trade. You’re trading a smaller percentage of a bigger company for capital that should make the company bigger. The question is whether the capital actually produces enterprise value greater than the dilution.