Dilution is the reduction in shareholders' equity positions due to the issuance or creation of new shares. Dilution also reduces a company's earnings per share (EPS), which can have a negative impact on share prices.

What happens on dilution?

Dilution refers to the process of adding additional solvent to a solution to decrease its concentration. This process keeps the amount of solute constant, but increases the total amount of solution, thereby decreasing its final concentration.

How does dilution work?

Dilution is the decrease in equity ownership by existing shareholders that happens each time you issue new shares, like during a fundraising or when you create an option pool. ... You also give an investor 2,000 shares in return for some much-needed capital.