Equity Dilution

Equity dilution occurs when a company issues additional shares, which reduces the ownership percentage of existing shareholders. For example, if you own 10% of a company and it issues more shares to raise funding, your ownership percentage decreases even though your total value might stay the same. Dilution is often a necessary part of growth, enabling companies to raise capital, attract investors, or compensate employees, but it means that each shareholder's stake becomes smaller relative to the whole.