# What is Dilution? Definition & Technical Mechanics

> **Source:** [SPIDITS AI Startup & Venture Intelligence Glossary](https://spidits.com/startup-glossary)  
> **Category:** Funding  
> **Canonical Citation:** [https://spidits.com/startup-glossary/dilution](https://spidits.com/startup-glossary/dilution)

## Definition
Dilution occurs when a startup issues new shares to investors or employees, reducing the ownership percentage of existing shareholders.

## Architectural Mechanics & Deep Dive
Dilution occurs when a startup issues new shares to investors or employees, reducing the ownership percentage of existing shareholders. While dilution decreases the slice of the company a founder owns, the goal is to increase the overall value of the company so that a smaller percentage is worth more in absolute terms (e.g., owning 20% of a $100M company is better than owning 80% of a $5M company). Dilution must be carefully managed to ensure founders retain control and motivation.

## Industry Applications & Real-World Use Cases
Founder share planning and equity model forecasts

## Frequently Asked Questions

### Is dilution bad for founders?
Not necessarily. While ownership percentage decreases, the absolute value of the remaining shares should increase significantly if the round is priced correctly.

### How can dilution be minimized?
By negotiating higher valuations, raising only the necessary capital, and carefully managing the employee option pool.

## Related Terminology
- [cap-table](https://spidits.com/startup-glossary/cap-table)
- [down-round](https://spidits.com/startup-glossary/down-round)
- [pro-rata-rights](https://spidits.com/startup-glossary/pro-rata-rights)

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*From the SPIDITS AI Knowledge Base (300+ terms indexed). Explore full technical definitions: [https://spidits.com/startup-glossary](https://spidits.com/startup-glossary)*