Dilution: When a company takes VC investments, it issues new shares and then sells them to the investor in return for the investment. This increases the total numbers of shares hence it decreases the percentage ownership of existing shareholders. For example: Assume the company has 100 shares, and the founders owned all of it (100% ownership). Now, if they issue 25 new shares, and sell it to an investor. Founders still own 100 shares, but their percent ownership is 80% instead of 100%, i.e., 100/125. Hence they diluted the ownership by 20%.
Glossary of the VC world
Dilution: When a company takes VC investments, it issues new shares and then sells them to the investor in return for the investment. This increases the total numbers of shares hence it decreases the percentage ownership of existing shareholders. For example: Assume the company has 100 shares, and the founders owned all of it (100% ownership). Now, if they issue 25 new shares, and sell it to an investor. Founders still own 100 shares, but their percent ownership is 80% instead of 100%, i.e., 100/125. Hence they diluted the ownership by 20%.
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