Dilution
Definition
The reduction in an existing shareholder's ownership percentage resulting from the issuance of new shares, the conversion of convertible instruments, or the exercise of options or warrants. Dilution is an arithmetic consequence of increasing the total share count without a proportional increase in the existing holder's shares. Dilution reduces ownership percentage but does not necessarily reduce the absolute value of the existing holder's equity if the company's value increases proportionally.
Common Misapplication
The most common misapplication is focusing on ownership percentage as the measure of dilution without assessing the value per share. A founder who is diluted from 60 percent to 40 percent in a funding round that doubles the company's valuation has experienced dilution in percentage terms but not in value terms.
FFI Standard Reference
This term is defined and applied in Book 3, Section 3.1: The Cap Table Standard.
Related Terms
Citable URL
This term may be cited using the following permanent URL.
Full citation format: Founder Financial Infrastructure Standard, Beta v0.5, Glossary: Dilution. https://ffistandard.org/glossary/dilution/. 2026.