Question 1

Is equity dilution always bad?

Accepted Answer

Not necessarily. Dilution is standard in startup growth. It is better to own a smaller percentage of a highly valuable company than 100% of a company with no capital to grow.

Question 2

What is an anti-dilution provision?

Accepted Answer

These are protective clauses in investor contracts that allow them to maintain their percentage of ownership in future rounds if the company issues shares at a lower valuation.

Question 3

How do employee stock options affect dilution?

Accepted Answer

When a startup creates an Employee Stock Option Pool (ESOP), it typically happens before an investment round, effectively diluting the founders before the investors even enter the cap table.

Startup Equity Dilution