What is Dilution?
How your ownership percentage shrinks when new shares are issued - even as the pie gets bigger.
Dilution: definition
When a company issues new shares - to investors, or into an option pool - the total share count rises, so each existing share represents a smaller slice of the company. Dilution reduces your percentage even though your share count is unchanged. The trade-off can still be good: raising capital or hiring talent can grow the company’s value enough that a smaller slice of a bigger pie is worth more.
- Caused by issuing new shares: financings, option grants, pool top-ups, converts
- Reduces ownership percentage, not necessarily value
- Pre-money vs. post-money valuation determines round dilution
- Anti-dilution provisions can protect certain investors
How Fintra handles it
Fintra models dilution directly on the cap table: before you raise or expand the pool, you can see exactly how each stakeholder’s ownership changes across scenarios. Post-round, the cap table updates automatically, and the fully diluted view reflects new investors, the enlarged pool, and any converting instruments.
Worked example
Frequently asked questions
Is dilution always bad?
No. Dilution reduces your ownership percentage, but if the capital or talent you gain grows the company’s value enough, your smaller percentage can be worth more in absolute terms. The question is whether what you get in return exceeds the ownership you give up.
How does an option pool cause dilution?
Creating or expanding an option pool reserves new shares for employees, increasing the fully diluted share count and diluting existing holders. Investors often require the pool to be created pre-money, which concentrates that dilution on founders.
What is the difference between pre-money and post-money?
Pre-money valuation is the company’s value before new investment; post-money is pre-money plus the amount raised. Your post-round ownership is roughly your shares ÷ the post-money fully diluted total, so the pre/post distinction directly drives dilution.
Can Fintra model dilution before a raise?
Yes. Fintra models dilution on the cap table across financing and pool scenarios, showing each stakeholder’s before-and-after ownership, then updates the cap table automatically once the round closes.
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