31 Mar 2018

Equity Dilution

Finance feed by:

RK & Associates

CA Firm    •    100% (2 votes)   •    15 Year 9 Month  experience

Equity dilution refers to the cut down in the stock holding of shareholders in relative terms of a particular company, usually a startup, whenever an offering for new shares is made whether through an IPO, FPO or private equity.

The total number of shares issued of that particular company increases while the number of shares held by the initial investors remain the same, thus their equity holdings in the company reduces in percentage terms. This reduction is termed as equity dilution.

The valuation of a company increases whenever more money comes in as a form of investment through an external entity.

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