Dilution is the reduction in the ownership percentage of existing shareholders caused by the issuance of new shares by a company.
Quick Reference:
Dilution. Ownership Reduction. New Share Issuance.
Expanded Definition:
Dilution occurs every time a company raises a new round of equity funding. While the total value of the company may increase, the individual “slice of the pie” owned by earlier investors or founders becomes smaller because there are more shares in existence. While often viewed negatively, “healthy dilution” is usually acceptable if the new capital significantly increases the overall value of the business, making a smaller percentage of the company worth more than the larger percentage was previously.