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What is dilutive capital?

Posted by: Christina Hernandez Sherwood on February 10, 2014

What is dilutive capital?

Dilutive capital is an investment that adds shares to your company, decreasing the amount other owners hold in the business. In a simplified example: a healthcare company begins with 100,000 shares owned entirely by the entrepreneur. To raise additional money, the entrepreneur issues 50,000 new shares investors will buy. When those are sold, the company now has 150,000 shares -- 100,000 owned by the entrepreneur and 50,000 owned by new investors. The entrepreneur has diluted his share in the company and now owns two-thirds of the business.

Investors could also ask for seats on the company's board of directors or seek a preference in being paid once the company has been sold.

FAQs are a weekly feature on eMed for current and aspiring healthcare entrepreneurs.

Category:  Creation  Tags:  FAQ, dilutive capital

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