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I'm assuming that questions about dilution hit Fred's radar after folks hit the theaters this weekend to see The Social Network. Although the actual numbers in

I'm assuming that questions about dilution hit Fred's radar after folks hit the theaters this weekend to see The Social Network. Although the actual numbers in the dramatic scene with Eduardo might be slightly exaggerated (I am not sure what happened in reality and how it got handled) - it's critical as a startup founder or startup employee to understand how dilution works because this can and will happen. It's natural. The one thing Fred did not mention is how some of the more aggressive investors out there will have contracts written that will limit the amount of dilution that can affect them when shares are redistributed - that was a new one I ran into with a recent startup of mine. Ultimately it's all about reading your contracts thoroughly and having not a good, but a GREAT lawyer who specializes in startups with you from the beginning.

morisy 16y ago
I had the same thoughts, though my co-founder and I had been looking for a clear explanation of this tricky topics for months before the movie. I'm glad it came out, pushed by popular culture or not. As for the factuality of the movie's dilution scene, as best I can tell the reduction in equity was somewhat less dramatic, but not that much. Instead of nearly a third of the company, Eduardo owned 7% according to several business blogs & Wikipedia (but no credible news sources, from which I can't find a citation about any number). This was reduced to less than a tenth of a percent, but later settled at about 5% (citation: http://bit.ly/aDms3t http://bit.ly/aDms3t) for what amounted to about 6 months of involvement.