One thing I learned through talking with my dad was the concept of equity dilution. Equity dilution is the reduction in stock holding of shareholders relative to a company, and happens mostly in startups. For example, if I were to start a company, I would own all the shares making me the owner. Lets say I invest $1,000,000 to start the company. Overtime, other investors will be willing to put their money into my company in exchange for shares. Now, if another person willing to invest their $1,000,000 into my company, instead of owning 100% of the company shares, I now only own half of the company. The other investor would own the other half. As more and more investors start to put their money into my company, my percent of ownership decreases unless I decide to buy more shares. It is important to understand equity dilution especially if you plan of investing, starting, or even working for a startup company because it can lead to huge rewards or potentially huge losses.
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I agree with you that it is fundamental to understand terms like equality dilution when trying to start or invest in a company. It may affect the outcome of your share or company and if a problem arises it will certainly help you try to fix the problem. Also, beforehand I understood that you would invest money in a company to earn shares but I never really understood how that worked from the business owner's point of view, so thank you for sharing this post.
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