What is dilution?

Dilution is what shrinks your percentage of a company when it creates new shares, since you keep every share you hold but there are now more shares in total. It is a statement about percentages and nothing else, so on its own it is neither good nor bad news. What your holding is worth afterwards depends on the price the new shares were sold at, because the company keeps the money they were sold for.

A company has 1,000 shares and you hold 100, so you own 10% of it. It issues 250 new shares at $2 each, raising $500, and now 1,250 shares exist while you still hold 100, which is 8%. That fall from 10% to 8% is the dilution, and no share left your account for it to happen. Does that mean you lost money? Not necessarily, because the business now holds $500 it did not have before, so a company worth $1,000 the day before is worth $1,500 the day after. Your 8% of $1,500 is $120, against the $100 you started with, so a smaller percentage left you better off. The issue price decides the direction: had those same 250 shares gone for 20 cents, the company would be worth $1,050 and your 8% only $84, the case people call a down round. Staff are often promised shares they can buy later, and those promises dilute everyone the same way once taken up, so filings report a fully diluted count covering shares that exist plus shares already promised.

Four friends own a food van worth $8,000, so a quarter each, or $2,000 apiece. The van needs a $4,000 engine and nobody has the cash, so a fifth person pays for it and joins as an owner. The van is worth $12,000 now and is shared five ways, so each of the four has gone from owning a quarter to owning a fifth, which is the dilution, and that fifth is worth $2,400. Let that fifth person in for only $1,000 and the van is worth $9,000, so the same smaller share is worth $1,800, and now the deal has cost them.