Equity dilution calculator

Existing Shares: New Shares Issued: Shareholder's Shares:

What is equity dilution?

Equity dilution occurs when a company issues new shares, reducing the ownership percentage of existing shareholders.

This typically happens when businesses raise capital through equity funding, potentially lowering the value of existing shares. While dilution can be concerning for current shareholders, it's often done with the goal of increasing the company's overall value in the long run.

How to calculate equity dilution

Dilution percentage = (Total shares after issuance/new shares issued) ×100

In this instance, new shares issued represent new shares that a company decides to issue. This could be due to various reasons, such as raising capital, employee stock options, or acquisitions.

Total shares after issuance reflect the total number of shares that will be outstanding after the new shares are issued.

Let's say your business is valued at $1 million with 10,000 shares, each worth $100. If you issue 2,000 new shares to an equity partner, the value per share drops to $83.33. This occurs because the total number of shares has increased, spreading the company's value across more shares.

What causes equity dilution?

Several factors can lead to equity dilution. Here are a few, but note that there may be others, such as acquisitions and issuing new stock through an IPO:

‍Raising capital through equity funding: When a company seeks to raise funds, it may issue new shares to investors in exchange for capital. This process increases the total number of shares outstanding without changing the company's overall value, effectively reducing the ownership percentage of existing shareholders.‍
Offering future equity: Companies may use mechanisms like Simple Agreements for Future Equity (SAFE) or convertible notes, which allow them to raise funds now while deferring the issuance of shares until a later date. This means that when these agreements are executed (often during subsequent funding rounds), new shares are created, diluting existing shareholders' ownership percentages.‍
Executing employee stock options: Many companies incentivize employees by granting stock options as part of their compensation packages. When employees exercise these options, new shares are issued, increasing the total share count and diluting existing shareholders' equity. This practice is common in startups aiming to attract talent while conserving cash.‍
Stock splits: A stock split occurs when a company divides its existing shares into multiple new shares to lower the trading price per share and make it more accessible to investors. Although this does not change the overall value of equity held by shareholders, it increases the number of shares outstanding and can be perceived as dilution since each share represents a smaller portion of ownership.

Rho is a fintech company, not a bank. Checking and card services provided by Webster Bank, N.A., member FDIC; savings account services provided by American Deposit Management, LLC, and its partner banks.

Note: This content is for informational purposes only. It doesn't necessarily reflect the views of Rho and should not be construed as legal, tax, benefits, financial, accounting, or other advice. If you need specific advice for your business, please consult with an expert, as rules and regulations change regularly.
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*This reflects the gross yield based on 90-day Treasury Bill rates as of [DATE]. The advertised yield does not include the annual fee, which ranges from 0.15% for deposits of $20M or more to 0.6% (the maximum annual fee) for deposits under $2M. Individual results may vary depending on the actual investment date and investment products selected. Past performance is not a guarantee of future performance results. The yield is variable and fluctuates without prior notice. The rate shown is before fees. Fees and costs may reduce the actual returns received. The amount of Treasury Bills available at a particular yield will depend upon the sellers’ offer size; any remaining cash balance after the purchase may not earn the same yield.

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