How many shares of a company remain after initial public offering (IPO) dilution through financing?
Share Dilution Is Not a Simple Subtraction
- Share dilution is calculated based on the remaining ownership percentage
- Therefore, the amount diluted becomes smaller with each round
Example
- Founder Shares: 100%
- Dilution per round: 10%
- Total funding rounds: 5
Dilution Process
- Round 1: 100% × (1 − 10%) = 90%
- Round 2: 90% × (1 − 10%) = 81%
- Round 3: 81% × (1 − 10%) = 72.9%
- Round 4: 72.9% × (1 − 10%) = 65.61%
- Round 5: 65.61% × (1 − 10%) = 59.05%
Final Result
- After 5 funding rounds with 10% dilution each
- The founder still retains approximately 59% ownership
- Therefore, it is not:
- 100% − 50% = 50%
- Instead:
- 100% × 90% × 90% × 90% × 90% × 90% ≈ 59%
Difference Between 50% and 59%
- If ownership drops directly from 100% to 50%
- It generally means 50% of the shares have been transferred
- Dilution, however, occurs when new shares are issued to investors
- The founder's percentage ownership decreases gradually
- These are two different concepts altogether