Every time a startup raises a new round, it issues new shares to the new investors, which means the total number of shares outstanding grows — so everyone who already held shares now owns a smaller percentage of the whole, even though the company itself may be worth much more than before. Creating or expanding an employee option pool has the same diluting effect on existing shareholders, since it sets aside shares that don’t yet belong to anyone specific but still count against the total.

Dilution matters because founders need to think in terms of the actual value of their shrinking slice, not just the percentage number — a smaller percentage of a much bigger, more valuable company can still be a better outcome than a larger percentage of a company that never grows. It becomes a real concern when dilution is unusually steep relative to the capital raised, for example when an investor insists on a large new option pool being carved out of the pre-money valuation rather than the post-money.

Existing investors often negotiate pro-rata rights specifically to protect against dilution — the right to invest again in future rounds just to maintain their existing percentage, rather than automatically shrinking with every new round.

🇵🇭 Philippine Example

As is typical anywhere, a Philippine startup that raises a seed round, then a Series A, then a Series B and beyond — the general pattern publicly reported for companies like Kumu — sees its founders' ownership percentage shrink at each stage even as the company's overall value rises, since exact founder ownership percentages are not typically disclosed publicly in Philippine funding announcements.

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