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What is dilution?

Dilution refers to the reduction in the ownership percentage of a company due to the issuance of new shares. Essentially, if a company issues more shares, existing shareholders' stake in the company gets diluted.

This happens in various situations such as when a company issues new shares for fundraising purposes, or when employees exercise stock options. Dilution isn't necessarily bad – if the company uses the new capital effectively, it could lead to growth that increases the value of existing shares. However, it's crucial for founders and early investors to understand the potential implications of dilution on their ownership stakes.

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