An angel investor uses a 20% equity stake in a startup for $200,000 seed funding. Later, the company issues new shares diluting early investors by 15%. What percentage ownership does the investor now hold?

Wed, 06 May 2026 11:15:47 +0000

**Why Early Investors’ Stakes Shrink—Even After Funding Growth**
In today’s fast-evolving startup landscape, it’s increasingly common for early investors to see their ownership percentages dip after a seed round. What once seemed like a solid 20% stake can gradually erode—sometimes by 15%—when companies issue new shares to raise additional capital. This dilution isn’t a failure; it’s a structural feature of startup financing. Understanding how dilution works helps founders and early backers navigate equity changes with clarity and confidence. --- ### Why Do Angel Investors Use a 20% Stake and Later Face Dilution? This pattern often unfolds in high-growth sectors where rapid scaling demands additional funding. Investors typically demand equity to fund product development, market entry, and team growth—but each new share issue reduces existing ownership. When a company later issues new shares, especially at a higher valuation (or even at a similar stage), early investors may find their percentage diluted proportionally. This dilution reflects the company’s evolving capital structure, not diminished commitment.