Dilution
The reduction in your ownership percentage when a company issues new shares.
Definition
Dilution occurs when a company issues new shares, reducing the ownership percentage of existing shareholders. Every funding round creates dilution because new shares are sold to investors. Option pool expansions also cause dilution. While dilution reduces your percentage, it is often offset by an increase in share value (the pie slice gets smaller, but the pie gets bigger).
Why it matters
Dilution is the hidden cost of fundraising. If you own 1% and the company raises two more rounds, you might own 0.6% by the time of an exit. Understanding dilution helps you estimate what your equity will actually be worth.
Example
You own 1% after joining. The company raises a Series B (selling 20% to investors) and expands the option pool by 5%. Your 1% becomes about 0.75%. If the valuation tripled, your shares are still worth more despite the dilution.