A reduction in equity value per share, earnings per share or relative ownership percentage resulting from subsequent equity issuances by a company, including from:

Dilution occurs owing to an increase in the aggregate outstanding common equity securities on a fully diluted basis either spread out over the same aggregate equity value, or earnings of the company, or relative to the same share holdings of an equity holder. Dilution is particularly severe in a down round investment, which not only lowers the per share value of an equity holder's existing securities because of the reduced sale price per share, but also results in increased dilution to an equity holder's ownership in the company relative to the dilution that would have occurred had a lower price not been used for the new investment.

In many investment contexts, particularly in venture capital and private equity minority investments with multiple rounds of financing, investors demand anti-dilution provisions to protect from future dilution.

For more information about the typical anti-dilution provisions used and examples of standard anti-dilution provisions, see Standard Documents, Warrant (General Form) and Warrant (Penny Warrant Form), and Practice Note, Minority Investments: Overview: Anti-Dilution Protection.

For a definition of dilution in the context of joint venture remedies, see cramdown.