What is dilution?
Dilution is the drop in existing owners' percentage when new shares are issued. It happens when a company sells shares in a funding round, enlarges its option pool, or converts SAFEs and convertible notes into stock. Each holder ends up with a smaller slice, though the slice can still be worth more if the company's valuation rises enough.
Why it matters to a revenue leader
Every round dilutes the people already holding equity, including sellers and managers with options. If revenue growth lifts the valuation faster than new shares are issued, dilution is a fair trade. If growth stalls and the company raises more money at the same or a lower price, the sales team's equity loses value, and that shows up in retention.
How to calculate it
Ownership after a round = Ownership before x (Pre-money valuation / Post-money valuation).
Common mistake: counting only issued shares and ignoring the options and convertibles that will become shares.
Example
Fictitious numbersA sales leader owns 1% of a company. The company raises $10 million at a $40 million pre-money valuation, for a $50 million post-money. The stake falls to 0.8%, and its paper value stays at $400,000 the day the round closes. It grows only if the company grows into a higher valuation.
"How much dilution does the next round assume, and what revenue growth makes it worth it?"
Sources
- SEC.gov | Glossary checked 9 Oct 2026
- Share Dilution: What Causes Dilution & How to Prepare checked 9 Oct 2026