Dilution is when your ownership percentage decreases as new shares are issued to investors. If you own 100% and raise funding for 20% equity, you're diluted to 80% ownership.
Every funding round dilutes existing shareholders. Example: Founder owns 100% (1M shares). Raises seed: Issues 250K new shares to investor (20% ownership). Founder now owns 800K of 1.25M shares (64% ownership, down from 100%). Over multiple rounds: Seed (20% to investors) → A (20%) → B (15%) → C (10%) → Founders end up with 20-35% after all rounds. Typical founder dilution: Seed: 80% → Series A: 60% → Series B: 45% → Series C: 30% → IPO: 20%. At $1B valuation with 20%, founder worth $200M (still life-changing). Key: Dilution is okay if company value grows faster. Would you rather own 100% of ₹1 crore or 20% of ₹100 crore? 20% wins (₹20 crore vs ₹1 crore). Protect against excessive dilution: Raise at fair valuations (not low), use SAFE notes carefully (uncapped SAFEs = massive dilution), negotiate anti-dilution clauses, consider bootstrapping early (less dilution), grant yourself vesting (ensures you stay motivated even at low ownership). Employee stock options are also dilutive—10-20% total reserved for ESOP over life of company.
Your Ownership % After Funding = Your Shares ÷ Total Shares (including new investor shares)Started with 100%. After Seed: 80%. After Series A: 60%. After B: 45%. After C: 30%. At $500M exit, 30% = $150M. Dilution worth it.
Founder raised at low valuations (₹10 crore → ₹30 crore → ₹80 crore), multiple small rounds. Ended with 5% at Series C. At ₹500 crore exit, made only ₹25 crore (should have been ₹150 crore+).
Founder bootstrapped to ₹5 crore ARR, then raised Series A at ₹200 crore. Gave up only 15% (vs 20-30% if raised earlier). Retained 85% through growth.
Dilution determines your exit payout. 5% of $100M = $5M. 30% of $100M = $30M. Keeping even 10% extra is worth millions. But over-optimizing for equity prevents raising capital to grow. Balance: Raise enough to win market, not so much that dilution kills motivation.
Seed: 15-25%. Series A: 15-25%. Series B: 10-20%. Series C+: 10-15%. Total founder dilution from 100% to 20-35% by IPO is typical.
Only by not raising funding (bootstrap) or using debt (doesn't dilute but requires repayment). All equity raises = dilution. The goal is smart dilution (raise at high valuations).
If you drop below 15% before Series C, you're over-diluted (raised too much early at low valuations). Below 10% means minimal exit outcome—hard to stay motivated.
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