
Redefining dilution - replicatorblog
https://techcrunch.com/2018/07/20/redefining-dilution/
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kijin
Founders like Mark Zuckerberg care deeply about dilution because they want to
remain in complete control of the company for as long as possible. If you're
like that, the percentage matters more than the absolute dollar value of your
shares.

Investors also often care about having the power to dictate the terms of
future rounds and/or acquisitions. Dilution reduces this power, and humans are
known to sacrifice a lot of good things in order to obtain and maintain power.
Feeling powerless is very different from being penniless. This might explain
why so many people are obsessed with percentages even at the cost of dollar
values.

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thereisnospork
I come from a non-finance background, but does anyone else find the concept of
dilution rather inane? Wouldn't it be much more intuitive and rational for all
parties involved if new shares couldn't be issued but rather existed strictly
as a percentage of the company which can only be bought from some previous
owner(s)? Who would be initially defined at incorporation.

I'm sure there is some reason the system is how it is, but I have no idea why
that is the case.

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pavlov
If corporations couldn’t offer new stock, they’d lose access to their primary
source of funds. IPOs and VC rounds wouldn’t exist, for example.

The whole point of dilution is that a growing company is not a zero-sum game,
and so it’s not necessary for somebody to lose their shares for somebody to
get them. Instead, stock offerings allow new participants to buy into the
corporation while giving existing shareholders a measure of the stock’s worth
(although they may not be able to sell unless the offering is coupled with
listing on a public exchange, i.e. an IPO).

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friendzis
> If corporations couldn’t offer new stock, they’d lose access to their
> primary source of funds. IPOs and VC rounds wouldn’t exist, for example.

Not necessarily. [Major] Shareholders could sell part of their stock and
invest in company or as in OP's case not sell all issued stock right away. I
think OP's point is that majority shareholders by issuing more shares dilute
themselves at the expense of all shareholders, i.e. it is possible to issue
more shares by diluting major shareholder 80% -> 60%, than by selling 25% of
their holdings).

I agree that new money could be a catalyst for further growth and increase
total value held by each shareholder, but shares are also ownership and share
dilution irrecoverably reduces ownership stake. I guess that was OP's point

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jbb67
This seems to be missing something very important to me. Yes if your ownership
goes from 10% to 8% but of a more valuable company you don't lose money. But
presumably you were hoping the company would do well and be worth 10 times as
much in the future, and your 2% loss of that future value is much more
significant.

