Accretion

The definition of accretion varies depending on its application. In venture capital and private equity, accretion may refer to the increase in a shareholder’s ownership percentage when other investors fail to participate in subsequent funding rounds, leading to a reduced overall share count. This phenomenon, known as ownership accretion, benefits existing investors by enhancing their stake without requiring additional investment.
In the context of convertible securities, such as bonds or preferred shares, accretion may refer to the gradual increase in the value of a security as it approaches maturity or conversion. For example, a zero-coupon bond experiences accretion as its value increases over time to reflect its final payout at maturity. Similarly, in mergers and acquisitions, accretion occurs when an acquired company adds to the earnings per share (EPS) of the acquiring company, enhancing shareholder value.
Accretion is an important concept in fundraising and investment valuation, as it directly impacts investor returns, ownership dilution, and long-term financial performance. It is often contrasted with dilution, where an increase in the number of outstanding shares reduces existing investors’ ownership percentages.
In summary, accretion in fundraising and investment refers to the progressive increase in value, ownership, or financial benefit, making it a key metric in evaluating investment growth, deal structuring, and capital appreciation.