Dilution effects refer to the reduction in the concentration of a substance in a solution when additional solvent is added. This concept is commonly observed in chemistry, where adding water to a concentrated solution decreases the amount of solute per unit volume. As a result, the properties of the solution, such as color and taste, may change. In finance, dilution effects occur when a company issues more shares, reducing the ownership percentage of existing shareholders. This can impact earnings per share and voting power. Understanding dilution is crucial for investors, especially when evaluating the potential value of their investments in companies like startups or publicly traded firms.