Investment BankingBeginner

Dilution

The fall in existing owners' percentage stake when new shares are issued.

Detailed explanation

Fresh issues, ESOPs and convertible instruments increase the share count. Dilution is not always bad if the money raised earns more than it costs.

Formula

New stake = Old shares held ÷ New total shares

Example

Own 10 of 100 shares (10%); company issues 25 new → 10 ÷ 125 = 8%.

Why it matters

Founders and investors track dilution at every funding round.

Key points

  • Caused by new issues, ESOPs, conversions.
  • Fully diluted counts include options.
  • Value can still rise if capital is used well.

Related terms

QIPPre-money & Post-money ValuationESOP

More in Investment Banking

Investment BankingMergers & AcquisitionsEquity Capital MarketsDebt Capital MarketsPitch BookDiscounted Cash Flow

Educational content only. Definitions and examples are illustrative and are not investment, tax or legal advice.