Wednesday 4 May 2016

Startup Equity Share Dilution - How it works

Well share dilution is pure mathematics and it has nothing to be worried about if the company is growing. Initially a company founder has 100% equity with 1000 shares, Now if a co founder comes in the founder will issue 1000 additional shares that means now initial founder share will be diluted to 50%, but the number of shares of initial founder remains the same, now if an investor come in again additional shares will be issued, every time new investor or employee comes in the equity in company will get diluted. But value of shares will keep on increasing thereby initially 100% of nothing in company way less than 10% of a big company...share dilution is a sign of growth.. No one will complain if value of shares increase with dilution as a cost.

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