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Worth also pointing out though that if you can sell new shares above intrinsic value that is accretive to existing shareholders. Dilution isn’t always a bad wor
by intuitionist 5mo ago
Worth also pointing out though that if you can sell new shares above intrinsic value that is accretive to existing shareholders. Dilution isn’t always a bad word. (It’s bad for the people buying new shares.)
- skrbjc 5mo agoBasically a ponzi at that point
- gruez 5mo agoBubble? Yes. Ponzi? No. The latter requires some element of deception/fraud. Strategy Inc. (formerly MicroStrategy) was basically something similar. They had $x worth of bitcoin in a vault, but were selling themselves for $2x.
- arcticbull 5mo agoWell they are raising capital to hand out in dividends on their preferred stock. So that's much closer.
- CobrastanJorji 5mo agoWell, partly it's an audience thing. Hacker News has a lot of folks who work at tech startups, and if you work at a tech startup, dilution is nearly always a very bad word for you.
- rahimnathwani 5mo agoIf you work at a tech startup then you probably hope your company raises an additional round of funding, i.e. you hope you get diluted.
- LtdJorge 5mo agoIsn’t that done with already existing shares (from the founders)? Then it wouldn’t be dilution.
- rahimnathwani 5mo agoNo. The main purpose of a funding round is for the company to sell shares and receive cash (e.g. to spend on marketing), not for founders to sell shares and receive cash (e.g. to spend on Ferraris). (Sometimes, at the same time as a funding round, founders may also sell some existing shares to the new investors.)
- mcmoor 5mo agoYeah I'm also always confused whenever I heard that a company issues new stocks. Why would existing shareholders agree for that? If there's more comprehensive resources about this I'd love to read it.