Dilution
The reduction in existing shareholders' ownership percentage when new shares are issued.
Dilution happens whenever a company issues new shares — in a funding round, when expanding the option pool, or when convertible instruments convert. Existing holders keep the same number of shares but own a smaller share of a larger whole.
Dilution is not inherently bad. Owning 60% of a company worth $50M is better than 100% of one worth $2M. What matters is whether the capital bought proportionate value.
The most commonly missed source is the option pool. When it is created pre-money, as investors usually require, founders absorb all of that dilution before the investor's money arrives.