Based in Sydney, Australia, Foundry is a blog by Rebecca Thao. Her posts explore modern architecture through photos and quotes by influential architects, engineers, and artists.

How Does Equity Dilution Work When a Start-Up Goes Through Several Rounds of Funding (from Seed to vc Etc)?

The first thing I would say is that dilution is not always a negative. What you want to focus on is the valuation.

When you start your company, you might own 100% of a small entity with little to no value. As you grow your company through several rounds of funding - seed, Series A, Series B, etc. - you’ll own a smaller percentage, but your smaller percentage will be worth more than a larger stake because it’ll be part of a much larger pie. 

In other words, 100% of nothing doesn’t have much value, but 50% of a $1 million pie starts to become more meaningful. As you continue enlarging the size of your pie with each new round of funding, your equity stake will be reduced, but the value of your holdings should be significantly higher. So, thinking about “value” as opposed to “percentage” is probably a better way for you to think about this question.

I talk more about how dilution works here and here.

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