Equity Dilution
The reduction in a founder's ownership percentage when new shares are issued to investors.
Definition
Equity dilution occurs when a startup issues new shares during a funding round, reducing the ownership percentage of existing shareholders. If you own 100% of a company and sell 20% to an investor, you now own 80%. Dilution happens at every round of funding. The key insight is that dilution isn't inherently bad if the value of your remaining stake increases. Owning 60% of a $50M company is better than owning 100% of a $1M company.
Why it matters for founders
Understanding dilution helps founders plan how much to raise, at what valuation, and how many rounds they can sustain before losing control. Over-diluting early means less leverage in later rounds and less upside at exit.
Example
A founder owns 100%. They raise a $500K seed at a $2M pre-money valuation ($2.5M post-money). The investor gets 20%, and the founder is diluted to 80%. A Series A at $10M pre-money raises $3M, diluting the founder to 61.5%.
How Foundra helps
Foundra helps you build traction before fundraising, which means higher valuations and less dilution when you do raise.
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Related terms
Pre-Money Valuation
The value of your startup before receiving new investment.
Seed Round
The first significant round of venture funding, typically $500K-$5M.
Pre-Seed Funding
The earliest stage of startup funding, typically from personal savings, friends and family, or angel investors.
Angel Investor
An individual who invests their own money in startups, usually at the earliest stages.