Every time a startup raises money there’s a parade of announcements and media coverage. Raising money isn’t a sign of inevitable success, yet it’s treated as one of the ultimate achievements. For the entrepreneurs and employees, a round of funding results in dilution. And, more and more rounds of funding equals more and more dilution.
Here are a few thoughts on dilution and funding:
- Dilution, of course, depends on amount of money raised and pre-money valuation (the amount the company is valued at before the money is invested)
- Equity isn’t static as stock options can be granted multiple times (e.g. existing options might be diluted by a new round of funding but could be partially off-set by the granting of additional options)
- As a percentage, dilution is often in the 20-50% range, depending on how well the startup is performing and how many investors competed to win the business
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