4 ms·

dilution is good for you

• alberth 4y ago
  How is being diluted good for an investor? If a VC went from owning 20% of a company to now own 10% - how is that good for the VC?
  • browningstreet 4y ago
    No VC wants to be the only investor -- more investors, more validation, greater valuations, bigger upside.
    • jacquesm 4y ago
      And not unimportantly: more people whose problem it is if things go South and then one of those might provide a solution acceptable to the remainder or there may be more people to spread the blame. Win win...
  • mason55 4y ago
    > If a VC went from owning 20% of a company to now own 10% - how is that good for the VC? Because that's not all that happens. The company also has a bunch more cash which means it's worth more. You own less of a bigger pie but the actual value of your slice shouldn't change. If you have 10 out of 100 shares of a company and it has a $10m pre-money valuation, your share of the company is worth $1m. Now the company raises $2m. The new investors get somewhere between 16 and 20 (newly issued, dilutive shares). Now you have 10 out of 116 - 120 shares. 8.3% - 8.5% of a company worth $12m ($10m + the $2m in cash). Which puts the value of your shares right around your original $1m. Except now the company has all this cash as well, so you're probably better off.
    • rileymat2 4y ago
      This only matters if the cash is deployed in a ROI positive way, because that cash you are accounting for will soon become something else.