Over 700 finance terms, Shmooped to perfection.
If you pour a bunch of milk into black coffee, you dilute the blackness - it becomes brownish with gloppy things in it. Same deal with stocks. If a company has 50 million shares outstanding and grants 10 million options with a low strike price for this example, it has diluted itself about 20% because the options will be exercised and - presto! - the company now has 60 million shares outstanding. Early stage start-up companies usually have stock option plans so most "suffer" dilution as employees get paid low salaries on the promise of wampum from equity appreciation.