Dilution is the reduction in an existing shareholder's percentage ownership following the issuance of new shares that they have not subscribed to proportionally. It results from capital increases, option exercises, convertible bond conversions or free share issuances. In fundraising, dilution is accepted by founders in exchange for new capital — its economic impact depends on the price at which new shares are issued relative to the company's pre-money value. Understanding dilution dynamics is essential for cap table modelling and for assessing the true economic cost of equity financing for existing shareholders.

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Example: a founder holds 100% of a startup valued at CHF 5.0 million pre-money. A Series A of CHF 2.0 million is raised at this valuation: new investors receive 28.6% of the post-money capital (CHF 2.0m / CHF 7.0m). The founder is diluted from 100% to 71.4% — but their absolute shareholding value grows from CHF 5.0 million to CHF 5.0 million × 71.4% = CHF 3.57 million, with expected value growth from deployment of the new capital.

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Hectelion models dilution impacts precisely across all share classes in fundraising mandates, providing founders and investors with clear economic visibility.