Dilution is the reduction of ownership percentage in the company, or the reduction in the shares of stock.This usually takes place when new equity is issued by the business.
Dilution of a company also takes place when option holders, like the employees in the company, exercise their options. As soon as the amount of outstanding shares increases, any current shareholders’ ownership becoming diluted, making each share’s value slightly lower.
While the effects of dilution mainly affects the ownership of the company, it also lessens the existing shares’ value. All of this is due to the reduction of the earning per share of the stock. And for these reasons, a lot of the public companies calculate all the earnings per share that accounts every option and the other dilutive securities.
The Eqvista app allows founders to track all their shareholdings, and see how much dilution would occur if more share are issued in the company. This will help to prevent any unnecessary dilution in your shares when taking in new investors.
The dilution of a company can take place at any time, mostly when the company needs some extra capital. While dilution can negatively affect the ownership of shareholders, the resulting added capital from these investors adds to the growth of the company. This will in turn improve the profitability and value of the shares of the company.
If you want to discover more of the effects of dilution on your company, Eqvist can help! We also offer a FREE cap table application that can help you keep a track of all the shares in your company. Check out the application & contact us today!