Hiring is the primary source of dilution at new companies. Stock packages have to come from somewhere.
Also, equity rounds reduce your percentage ownership, but (usually) not the current value of the stock you hold. If a $100M company raises $100M, the number of outstanding shares doubles. However the company is now worth $200M (the cash in the bank counts towards valuation). Now, your 1% share is a 0.5% share, but it is still worth $1M. If the company spends the $100M without growing, then the funding round was a mistake, and your shares are now worth $0.5M
So, spending money lowers the value of your stock. Issuing shares lowers your upside at a fixed future valuation. If management knows what it is doing, raising cash should increase the chances the company grows, and so should hiring.
(these calculations are oversimplifications, but the intuition is right)
> Hiring is the primary source of dilution at new companies.
Is that true? Generally don't companies set aside ~5% of the company for employees? Even the first 5 employees probably get a combined total of less than 10%, whereas the first investors probably get 10+%.
Also, equity rounds reduce your percentage ownership, but (usually) not the current value of the stock you hold. If a $100M company raises $100M, the number of outstanding shares doubles. However the company is now worth $200M (the cash in the bank counts towards valuation). Now, your 1% share is a 0.5% share, but it is still worth $1M. If the company spends the $100M without growing, then the funding round was a mistake, and your shares are now worth $0.5M
So, spending money lowers the value of your stock. Issuing shares lowers your upside at a fixed future valuation. If management knows what it is doing, raising cash should increase the chances the company grows, and so should hiring.
(these calculations are oversimplifications, but the intuition is right)