Well, no, it does, right? The company will just dilute to accommodate investors.
Not that I disagree about 50% being crazy; the problem has more to do with founder incentives, though, doesn't it?
Not that I disagree about 50% being crazy; the problem has more to do with founder incentives, though, doesn't it?
For example, let's say there are 10 shares in a company, and I own 1. We decide we need 100 shares in total. Dilution makes me think 90 new shares are issued, and I still own 1, bringing my ownership down from 10% to 1%. However, common sense tells me if you issue 90 new shares, since I already own 10%, that means 10% of the new shares should belong to me. So, I now have 1 + 9, or 10/100 shares, remaining at 10% ownership.
Why is the above not always the case?
Your shares don't change and you don't just get issued new shares. That's why in startups people reference actual shares of stock rather than percentages. Percentages is just a way for people to communicate. That said, in an actual startup we're talking about tens of thousands to millions of shares initially rather than this dumb down version.
As for why your version isn't always the case, it's obvious that if everyone shares get increase accordingly, and retain their percentage ownership, there'd be no new shares/percentage going to new investors of employees
If 5% of the shares are protected from dilution, that still leaves 95% of shares that can flex.