Dilution is a crucial concept in the context of capital raising according to former head of investment banking for National Securities Corporation and B. Riley Securities Jonathan Rich, particularly for companies actively seeking funding and one of if not the most important consideration by founders, stakeholders and prospective investors alike. Dilution occurs when a company issues new shares, leading to a decrease in the ownership percentage of existing shareholders. Existing investors are willing to exchange dilution and lower ownership as a result in order to deploy raised capital accretively in an effort to continue to grow the overall value of the company, making it worthwhile to own a smaller piece of a larger, more valuable enterprise. New Investors in turn want to know that the shares they are acquiring are being purchased at a fair value and that in turn, the company will use the funds to create larger future value for them and all stakeholders alike.
Jonathan Rich, former head of investment banking for National Securities Corporation and B. Riley Securities believes that the importance of dilution in capital raising can be understood through several key points:
In summary, according to Jonathan Rich, formerly head of Investment Banking at National Securities Corporation and B. Riley Securities, dilution is a trade-off that companies make to secure the capital needed for growth and development. While it is a common and necessary aspect of fundraising, managing dilution effectively and communicating its implications transparently are crucial for maintaining trust and alignment with existing shareholders.
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