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Finance Glossary

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Over 700 finance terms, Shmooped to perfection.



First see dilution.

Recap: dilution is bad. If you have a nice glass of lemonade and put a bunch of ice in it, eventually the lemonade will start to get watery... a.k.a. diluted. (Science!) If you own 50% of the shares of a company with 1 million shares outstanding and the company issues 1 million more shares, you'll own only 25% of the company. (Finance!)

Consider dilution from the eyes of an entrepreneur: The eventual goal in any company is to create wealth for shareholders. In the beginning, the founder owns all of the "wealth" or at least the shares in the company. Over time, that founder gives away pieces of the company in the form of shares to investors (in exchange for $). The problem is that the more shares the founder hands over, the less of her own company she owns.

An anti-dilutive act is anything the founder does to stop this problem. For example, she might buy back some of her own shares.


Some companies are anti-dilutive from the start, especially if they don't need a ton of money to get started. Yahoo! required only a little over $1 million of total capital until it reached break even. It chose to take on more capital because it believed that the dilution was worth the incremental capital raised so that it could take advantage of market opportunities. eBay was about the same. The great fortunes of the internet era were made in part because the founders suffered so little dilution that, at the end, they had tens of billions of dollars of wealth via their large percentage ownership stakes in the companies they founded.