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How Equity Dilution Works
- martinkallstrom 16y agoMaybe the calculations should also take into account that the chances of the equity becoming worth anything at all is probably higher in a company that is able to bring in one or two rounds of financing. And that the exit value hopefully is higher. All the owners are in most cases diluted equally, including the ones making the decision. The total worth of your shares should be higher even counting the dilution, or you are working at the wrong company to begin with.
- lemming 16y agoExactly. It's very easy to obsess over your percentage of the company, but what you really care about is (price per share) x (number of shares you own). There are a lot of additional factors that you'll need to understand to work out what your piece of pie is worth (liquidation preferences, participating preferred etc) but percentage of the company is never one of them.
- jules 16y agoWho has the power to decide over dilution? Can you decide that you don't want your part diluted, and the rest can't do anything about that?
- martinkallstrom 16y agoNo, it is probably a majority vote among the share holders. Minority share holders have no say in the decision.
- ojbyrne 16y agoThis seems like a pretty-long winded explanation of a relatively simple concept, and doesn't even mention option pools, a nearly ubiquitous feature of most funding rounds.