Understanding equity distribution and dilution is key for startup founders. 🌟

Here’s a quick guide:

1️⃣ What is Equity Dilution?

➡️When new shareholders join, the percentage of ownership for existing shareholders decreases.
➡️Think of your company as a pie. As you add more people, everyone’s slice gets smaller.

2️⃣ Primary Sale vs. Secondary Sale:

➡️Primary Sale: New shares are created and sold to investors, diluting everyone’s ownership.
➡️Secondary Sale: Existing shares are sold by current shareholders to new investors, with no dilution for others.

3️⃣ How Dilution Works:

➡️If a company with two founders receives $1M on a $3M pre-money valuation, new shares will be issued, reducing the founders’ percentage of ownership.

4️⃣ How Much to Dilute?

➡️Balance is key. Too much dilution can deter future investors; too little can make them question their stake.
➡️Focus on growth over precise dilution metrics.

5️⃣ Pre-money vs. Post-money Valuation:

➡️Pre-money Valuation: Value before investment.
➡️Post-money Valuation: Value after investment.

Equity distribution is an art. Master it to drive your startup’s success!