Dilution is devaluation of shares as a result of emitting new shares to raise money:

<html>
<img src="/static/files/MBI/Module%2010/dilution.PNG" width=600">
</html>

As an example imaging the following start situation:
Round A		
Share price	 \$1,00 	
||# Shares|Percentage of total|h
|VC|4.000.000|38,1%|
|Total|10.500.000||

''Scenario: "Company does well": Round B''
Share price	 \$5,00 		
Money to be raised	 \$20.000.000	
Shares to add to pool	 4.000.000 		
||# Shares|Percentage of total|Value of shares|h
|VC|4.000.000|27,6%|\$20.000.000,00|
|Total  shares|10.500.000|||
|New shares|4.000.000|||
|New total|14.500.000|||
In this scenario there is some dilution but it is 'profitable'. The VC will be happy.

''Scenario: "Company does bad": Round B'''
Share price	 \$0,10 		
Money to be raised	 \$20.000.000
Shares to add to pool	 200.000.000 
||# Shares|Percentage of total|Value of shares|h
|VC|4.000.000|1,9%|\$400.000,00|
|Total  shares|10.500.000|||
|New shares|200.000.000|||
|New total|210.500.000|||
In this scenario there is huge dilution and not profitable. VC will be unhappy.
bag
mbi_public
created
Fri, 05 Nov 2010 13:13:17 GMT
creator
dirkjan
modified
Fri, 05 Nov 2010 13:13:17 GMT
modifier
dirkjan
tags
M10
Term
creator
dirkjan