Dilution

Dilution is the reduction in your ownership percentage when a company issues new shares. If you own 1% and the company issues new shares to investors or an ESOP pool, your 1% becomes a smaller percentage of a larger total.

Dilution is normal in startup growth. The key question isn't whether it happens but whether the value of your remaining stake increases despite the lower percentage. Owning 0.7% of a $50M company ($350K) is better than owning 1% of a $10M company ($100K).

Understanding dilution is essential for employees with stock options. Your ESOP agreement specifies a number of shares, but your ownership percentage will change with every new round.