Reverse Dilution

The return of unvested stock to a business by departing employees is known as "reverse dilution." Reclaiming stock that has not yet reached its full vesting period is the goal of this process.

What it Means:

Reverse Dilution helps Indian founders by lessening the effect of unvested stock on the ownership structure as a whole. It entails recovering shares from leaving workers, giving equity distribution flexibility.

How to Calculate:

Quantify the unvested shares that departing employees are returning in order to compute Reverse Dilution. This can be given as a numerical count or as a percentage of all outstanding shares.

Why Measure:

Measuring Reverse Dilution is crucial for Indian startups as it helps in maintaining a clear and updated cap table. It guarantees the efficient management of unvested shares and their reallocation to either new or existing staff members.

Examples:

Think about an Indian tech startup that receives 10,000 unvested shares back from a departing employee. If the total outstanding shares are 1,00,000, the Reverse Dilution would be 10% (10,000 / 1,00,000).

Understanding and strategically implementing Reverse Dilution enables founders to navigate equity distribution in the ever-changing Indian startup landscape, thereby fostering a transparent and healthy ownership structure.