什么是股权稀释？

What is equity dilution?

Equity dilution is when a company issues new shares, causing existing shareholders to reduce their percentage of ownership in the company. Dilution may also occur when holders of stock options (such as employees of the company) or holders of other elective securities exercise their options. As the number of outstanding shares increases, each existing shareholder owns a smaller proportion of the company, i.e., is diluted, making each share less valuable.

Stocks represent an equity stake in a company. When a company's board of directors decides to take their company public, usually through an initial public offering (IPO), they authorize an initial number of shares to be issued. This number of outstanding shares is often referred to as the "float." If the company later issues additional shares (often called a secondary offering), they increase the float, thereby diluting their shares: shareholders who bought into the original IPO now own a smaller percentage of the company than before the new shares were issued.

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• Dilution is a reduction in shareholder equity 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 the stock price.
• Dilution may occur when a company raises additional equity capital, although existing shareholders are usually disadvantaged.

Understanding Dilution

Equity dilution simply means cutting the equity "cake" into more pieces. There will be more chunks, but each chunk will be smaller. So you still get your piece of the pie, it's just a smaller proportion of the total than you expected, which is generally undesirable.

While it primarily affects equity ownership, dilution also reduces a company's earnings per share (EPS, or net profit divided by float), which typically depresses the share price in the market. As a result, many public companies publish estimates of undiluted and diluted earnings per share, which essentially provide investors with a "what-if scenario" in the event that new shares are issued. Diluted earnings per share assumes that potentially dilutive securities have been converted into outstanding shares.

When a company raises additional equity capital, dilution may occur as newly created shares are issued to new investors. The potential benefit of raising capital in this manner is that the funds a company receives from selling additional shares can improve the company's profitability and growth prospects, and in turn increase the value of its shares.

Understandably, dilution is often frowned upon by existing shareholders, and companies sometimes initiate stock buyback programs to help curb the impact of dilution. Note that stock splits do not cause dilution. When a company undergoes a stock split, existing investors receive additional shares and the price of the stock adjusts accordingly, keeping their percentage of ownership in the company unchanged.

General Example of Equity Dilution

Suppose a company issues 100 shares to 100 individual shareholders. Each shareholder owns 1% of the company. If the company then conducts a secondary offering and issues 100 new shares to 100 additional shareholders, each shareholder would own only 0.5% of the company. A smaller ownership ratio also dilutes each investor's voting power.

Real cases of equity dilution

Typically, a public company announces its intention to issue new shares in advance, thus diluting its current equity pool. This allows new and existing investors to plan accordingly. For example, MGT Capital filed a proxy statement on July 8, 2016, outlining a stock option plan for newly appointed Chief Executive Officer John McAfee. Additionally, the statement unveiled the structure of recent corporate acquisitions, which were purchased through a combination of cash and stock.

Executive stock option plans, as well as acquisitions, are expected to dilute the number of shares currently outstanding. Additionally, the proxy statement included a proposal for the issuance of new authorized shares, suggesting the company expects more dilution in the near term.

Equity dilution protection

Shareholders typically resist dilution because it reduces the value of their existing equity. Dilution protection refers to contractual provisions that limit or completely prevent an investor's stake in a company from being reduced in subsequent financing rounds. Dilution protection kicks in if the company acts in a way that reduces investors' percentage claim to the company's assets.

For example, if an investor's stake is 20% and the company is to pursue additional financing rounds, the company must offer discounted shares to the investor to at least partially compensate for the dilution of the overall ownership stake. Dilution protection provisions are often found in venture capital financing agreements. Dilution protection is sometimes referred to as "anti-dilution protection."

Likewise, an anti-dilution provision is a provision in an option or convertible security, also known as an "anti-dilution provision." It protects investors from dilution that would result from later issuing shares at a lower price than investors originally paid. These provisions are common in convertible preferred stock, a popular form of venture capital investment.

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