How and Why can a shareholder’s ownership become watered-down? Share Dilution
Remember that scene in The Social Network when one of Mark Zuckerberg’s original partners found out that the shares that were once like 30% of FaceBook had suddenly become like 2% of FaceBook? How does that happen?
In the movie, Zuckerberg is made to look like an opportunist who took advantage of his former partner. In many businesses, dilution of an ownership position happens by design and with purpose.
In fact, all the greatest companies you know have had shareholders dilute their positions over time to facilitate the incoming capital that they needed to grow.
This week I answer a question about how share dilution can happen in a small business and why it can be something that the founding shareholders may wish to happen. It’s a follow up question to the video I did last year about how many shares a small business should have which you can find here: http://www.investlocalbook.com/2016/12/over-last-two-weeks-ive-had.html
Watch the video before if becomes too watered-down: (ha!) https://youtu.be/FtogXYXCC1s
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Thank you and I’ll see you next time.
