
The simplest way to think about this is: If you own 20% of a $2 million company your stake is worth $400,000. If you raise a new round venture capital (say $2.5 million at a $7.5 million pre-money valuation, which is a $10 million post-money) you get diluted by 25% (2.5m / 10m). So you own 15% of the new company but that 15% is now worth $1.5 million or a gain of $1.1 million.