investment
Dilution is the reduction in an existing holder’s percentage of the company (and often of the exit waterfall) when new shares, options or converting instruments are issued. Price per share can rise while your percent falls.
Issuing new common equity or preferred shares reduces existing percentage ownership. That is percentage dilution. Economic dilution is whether your claim on a given exit got smaller in euros — which depends on the price of the new round and the preference stack. Control dilution is lost votes and board seats.
Anti-dilution clauses (weighted average, full ratchet) in NVCA-style preferred protect investors in down rounds by issuing extra shares. They dilute founders further. They are not a law of nature; they are a term.
Founder owns 80% of 1,000,000 shares. Company issues 250,000 new shares to investors. Founder still has 800,000 shares (80% of the old count) but 64% of the new count. If the round is at a higher price, the founder’s paper value can still rise. If the round is a down round with a full ratchet on old prefs, the founder’s percent and economics both fall hard.
A pool refresh carved from pre-money is dilution targeted at existing holders, usually founders, to make the investor’s post-money percent “clean.” It is still dilution. Name it.
Tracking only issued shares, not fully diluted. Ignoring notes that will convert. Celebrating a higher pre-money that required a larger pool and a participating pref.
Dilution math will not tell you whether the capital was worth it. That is a use-of-proceeds and return question.
Dilution belongs on a living cap table, not in a slide footnote. When owners see the waterfall and the percent together, capital raising decisions get quieter.