What Is IPO Dilution?

Well, in the simplest terms, IPO dilution refers to the reduction in the ownership percentage of a company’s existing shareholders when new shares are issued in an initial public offering, or IPO. Imagine, if you will, a pie: each slice represents a percentage of ownership. When an IPO occurs and more slices are cut, each existing slice becomes proportionally smaller – that’s dilution. It’s often a necessary trade-off for companies to raise capital, although it can negatively impact existing shareholders if not managed properly.

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