If TechA is sold for $1B dollars, Investor X shares are worth $100M.
Now, say the company raises $40M - that’s 33% of the current market cap - by issuing new shares at $1.00. That results in 40M new shares, taking total SOI to 160M.
Investor X still holds 12M shares, but now owns 7.5% of the company instead of 10%. So, when Tech A is sold for $1B, they would receive $75M, not $100M. A decrease in potential future earnings of 25%.
Every time dilution occurs, existing shareholders end up owning smaller and smaller slices of the same pie - unless that pie grows faster than the dilution.
The real question you need to ask is whether you're comfortable reducing your future upside by double-digit percentages in exchange for the hope that the capital raised will create equivalent or greater value. If it doesn't, the dilution was a loss.
The serious issue being overlooked by some investors - @melburnian - is that upcoming dilution is likely to far exceed 30% of the current market cap in the short term. This level of dilution that has happened and will continue to happen will significantly erode the value for shareholders who have remained loyal to the company for years.
Regarding Convertible Notes - Susquehanna can opt to defer all payments and take the full $20M after 3 or 4 anniversaries. Meaning IMU pay back the loan in cash not shares.
IMU Price at posting:
1.6¢ Sentiment: Sell Disclosure: Not Held
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