How does dilution work?

Dilution is a lot like pie. To put it in the words of a financially minded baker:

“So let’s say my business is a pie. When I raise money and take on new investors, I need to create more slices. That means the size of my slice gets smaller as a result. However, the investors set a new, higher price to buy into the business. So although my slice got smaller, the overall pie is now worth more. Therefore, I’m actually a wealthier baker, with my smaller slice, than I was before.”

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