Dilution
Reduction in existing shareholder ownership when new shares are issued.
Definition
Dilution is the percentage decrease in an existing shareholder's ownership stake caused by the issuance of new shares - through a financing, option grants, SAFE conversion, or warrant exercise. Dilution reduces ownership percentage but not necessarily value, since a larger company can make a smaller stake worth more. Founders typically see 15 to 25 percent dilution per priced round. Anti-dilution provisions and pro-rata rights affect who bears dilution in later rounds, especially in a down round.What this means in practice
MedTech companies typically dilute 20–25% per priced round. Founders who raise 6–8 rounds before exit can end up with single-digit ownership. Capital-efficient milestones - anything that lets you raise less or at higher valuations - directly preserve founder equity.Examples
- A MedTech startup undergoes a Series B funding round, diluting existing shareholders to fund a critical clinical trial required for FDA premarket approval (PMA).
- A company's ownership structure changes significantly after a large equity investment, leading to a re-evaluation of the notified body contract under the EU MDR requirements.
- New investors join a medical device company through share issuance, prompting a review of the budget allocated for maintaining ISO 13485 certification and post-market surveillance activities.
- •Confusing financial dilution with product-related dilution, which refers to reducing the concentration of a substance.
- •Underestimating how dilution affects long-term strategic decisions, including budget allocation for regulatory affairs and quality assurance.
- •Failing to consider the impact of ownership changes on existing regulatory submissions and approvals, such as marketing authorizations or notified body certifications.
- •Overlooking the potential for new investors to influence risk management strategies, thereby impacting compliance with ISO 14971.
- •Not adequately communicating ownership changes to relevant regulatory bodies when such changes affect legal manufacturer status or authorized representation.
Frequently asked questions
Related terms
Grouped by themeEditor's picks
· Hand-selected related conceptsAdjustment that protects investors if the company raises a future round at a lower price.
Ledger of all securities issued by a company and who owns them.
Shares reserved for issuance to employees as stock options.
More in Investment & Finance
· Same categoryAn independent fair-market-value appraisal of common stock used to set tax-compliant strike prices for employee stock options.
The governing body elected by stockholders that oversees management, approves major corporate actions, and typically includes investor-designated seats after venture financing.
Interim financing between priced rounds, usually convertible.
Rate at which a company spends cash, typically expressed monthly.
Where this term appears across MedTech Terms.
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Sources
4 sourcesSources support the definition or relevant regulatory context, not necessarily every claim on this page. Each is graded against our source-tier hierarchy so you can see what rests on binding law versus commentary.
- 1Carta: founder dilutionTier 4 VerifiedCartacarta.com
- 2PitchBook - MedTech CoverageTier 4 VerifiedPitchBookpitchbook.com
- 3NVCA Model DocumentsTier 4 VerifiedNVCAnvca.org
- 4SEC capital-raising glossary: dilutionTier 2 VerifiedU.S. Securities and Exchange Commissionsec.gov
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