Dilution

The contractual right of existing shareholders to participate in future funding rounds on a pro-rata basis, maintaining their ownership percentage. Pre-emption rights protect early investors from dilution and are a standard provision in shareholders' agreements.

A transaction in which existing shareholders sell their equity to new investors rather than the company issuing new shares. Secondary sales provide liquidity to founders and early investors without diluting other shareholders or changing the company's capitalisation.

A clause in an investment agreement that protects existing investors from ownership dilution if the company raises a subsequent round at a lower valuation (a down round). Common mechanisms include full ratchet and weighted-average anti-dilution.

A detailed register of a company's equity ownership structure showing all shareholders, their percentage ownership, share classes, options, warrants, and the dilutive effect of each financing round. A clean cap table is essential for fundraising and exit readiness.

A marketplace where existing shareholders in private companies — typically employees, early investors, or founders — can sell their ownership stakes to new buyers before an IPO or trade sale. Secondary markets for private shares have grown significantly, with platforms such as Forge Global and Nasdaq Private Market facilitating transactions that provide liquidity and price discovery for otherwise illiquid private company equity.

The valuation of a company immediately after a new funding round, calculated as the pre-money valuation plus the capital raised. Post-money valuation determines the ownership percentage that new investors receive for their investment.

A reduction applied to the value of an ownership interest to reflect the lack of a ready market in which to sell the interest quickly and at full value. Also known as a discount for lack of marketability (DLOM), this adjustment is particularly significant for private company valuations where shares cannot be readily traded on a public exchange.

The ownership stake held by a company's founders, typically established at incorporation and subject to dilution through subsequent funding rounds. Founders' equity is usually subject to vesting schedules and may carry different rights from investor shares, reflecting the intangible contribution of the founding team's vision and early-stage effort.

What is a pro-rata right?

A pro-rata (or pro-rata participation) right entitles an investor to maintain their ownership percentage by participating in future funding rounds on the same terms as new investors.

What is pre-money valuation?

Pre-money valuation is the implied value of a company before new investment. It determines how much equity an investor receives for their cheque.

What is the Cap Table and why does it matter?

A cap table (capitalisation table) lists all of a company's shares, options, and convertible securities, showing who owns what percentage of the company — it is essential for fundraising, dilution analysis, and exit planning.