So, here’s something I didn’t expect to spend my week thinking about: Tesco.

Specifically, Tesco issuing 1.5 billion new shares - the kind of thing that normally sends investors into a meltdown - and somehow making everyone richer.

And I get it, dilution freaks founders out. I work with business owners every day, and dilution is right up there with “HMRC wants to talk” on the list of things that trigger heart palpitations.

People react to dilution the same way shoppers do when they forget to scan their club card at Tesco.

Like the world’s ending.

There’s spin, panic and a tiny meltdown when you realise you’ve just paid £4 for the £1.50 eggs - all because you didn’t open the app in time.

Founders behave in a similar way. The moment someone suggests issuing new shares, they go straight into panic mode. Suddenly everything becomes about clinging to the cap table, overpaying for debt or obsessing over valuation to the decimal point.

But dilution didn’t rattle Tesco. They embraced it - on purpose - and still made shareholders richer. When the deal eventually paid off, they returned more cash to investors than they ever “took” from them.

If you can’t be bothered to read the whole thing, here are the essentials:

1/ Tesco printed 1.5B+ new shares to buy Booker - not because they were desperate for cash, but because it was the fastest way to secure a major strategic asset.

2/ Owning Booker gave Tesco control over pricing, distribution and volume economics across supermarkets, corner shops, pubs, restaurants and catering.

3/ They later returned £9.25B to investors through dividends and buybacks, meaning shareholders ended up wealthier than before the dilution.

4/ The takeaway: dilution only becomes dangerous when it’s directionless. Use equity to buy market power, explain the plan early and deliver on it with receipts.

Tesco deliberately issued 1.5B+ new shares to acquire Booker, the UK’s largest wholesale food distributor. On paper, that’s enormous dilution; the sort that normally makes investors sweat through their M&S shirts. Because when a company suddenly balloons its share count, the market usually assumes one thing:

“Are you in trouble?”

That’s the default interpretation. Heavy dilution is often a distress signal - a business plugging a hole, not making a power move. But Tesco wasn’t scrambling for survival. They were buying leverage.

They stopped the panic before it could start. Instead of letting the market speculate, Tesco told investors exactly what the move would achieve: a stronger hold over the food supply chain.

By acquiring Booker, Tesco stepped into the part of the food industry most supermarkets never touch. Booker supplies restaurants, pubs, caterers, corner shops, schools - basically the entire food ecosystem behind the scenes. Owning Booker meant Tesco didn’t just sell food… they now influenced how food moves, who pays what and which prices everyone else has to swallow.

In practical terms, the deal gave Tesco:

> A bigger footprint across the food economy.

> More negotiating muscle with suppliers.

> Control upstream, not just at the checkout.

It was a structural upgrade rather than just a liquidity patch.

Tesco didn’t give the market a single moment to invent its own narrative. Before the Booker deal was even signed, they spelled out exactly how shareholders would get their money back - the size of the returns, the timeline for payouts, and the mechanisms they’d use (dividends first, buybacks after). Everything was mapped out in black and white.

And this wasn’t just a finance team move. The communication plan, the legal structuring, the sequence of announcements, the market signalling - all of it was choreographed upfront. By the time the shares were issued, investors had nothing left to interpret, nothing to speculate about, nothing to spiral over.

This point hit home on LinkedIn, too. Someone noted that Tesco fixed operations first, then diluted. The sequencing mattered - it wasn’t a gamble, it was a move they’d earned the right to make.

At FundOnion, I see how messy things get when businesses look for capital only once the pressure hits. That’s when every option becomes expensive. Tesco played it differently: stabilise the business, explain the strategy, then take the market with you.

Tesco promised investors they’d get their money back. Then they did something most companies only pretend to do: They actually paid people. And paid more than they took. The payoff looked like this:

Shareholders weren’t diluted in the end. They were rewarded for waiting.

Meanwhile, the Booker deal quietly turned Tesco into the company that controls the UK food supply like it’s a private Monopoly board. They now influence:

In other words, Tesco bought a wholesale network that controls how food moves from producers to shops and kitchens nationwide.

In fact, Tesco controls so much of the supply chain that the only thing that held back UK inflation longer than the Bank of England was the £3 meal deal - and even that eventually cracked under the pressure (it’s now £3.85, with a club card that is). 

So yes - dilution cost investors a slice of the pie upfront. But Tesco bought the bakery, and then gave investors an even bigger slice for sticking around.

Let’s look at what Tesco actually bought with dilution - and how SMEs can use equity to own more than the business itself.

Tesco used new shares to buy Booker because owning a wholesaler changes the rules of the game. When you control the part of the industry that supplies everyone else, you get access to data, relationships, volume pricing, distribution routes and demand patterns across the whole sector, not just your own stores. Dilution wasn’t a cash top-up; it was a way of buying the infrastructure that lets you influence how the market works.

Founders often think equity is just a way to pay for headcount or marketing. Tesco used it to buy something much bigger: influence. By owning the business that supplied half the industry, they gained bargaining power, better margins and a seat at every table that mattered. Equity wasn’t spent on costs, but on changing their position in the market.

Tesco didn’t treat equity like something to lock away in a safe. They treated ownership like a lever they could pull to upgrade their position in the market. By sharing a bit more of the company, they gained access to Booker’s whole distribution network, stronger bargaining power with suppliers and better margins across the business. In simple terms: they used control to earn more control elsewhere.

Tesco didn’t leave a single gap for investors to fill with imagination. Before the shares were even issued, they laid out the whole sequence: buy Booker, improve performance, return cash, then run buybacks. Everyone knew the milestones and the order they’d arrive in.

And then - crucially - they did the thing so few companies manage: they actually delivered. Dividends landed, buybacks rolled out, and every promise was backed by receipts rather than narrative. That’s what made the dilution feel safe. When a business sets clear expectations and then meets them, investors lean in.

Tesco diluted while they were stable. If they’d waited until things were messy, the market would have treated them like a distressed seller and priced the deal like a clearance aisle. Strength lowers cost. Desperation inflates it.

Capital’s a toolbox - the trick is picking the tool that suits the job. Tesco chose equity for Booker because the payoff was long-term structural power as opposed to quick cash flow. 

Equity investors can wait years for compounding advantage. 
Debt demands steady, predictable repayments. 

If you’re buying future influence or scale, equity fits. 
If you’re funding short-term returns, debt does.

Context matters a lot. Founders often show up saying, “I want this much money for this much equity”, but the market might not give you that today - and that doesn’t mean you walk away. It just means you plan your way forward.

Tesco did exactly that. They sold a big chunk of the business to get the strategic position they needed, and once the plan delivered, they bought it back on better terms. It wasn’t a one-off move; it was a progression.

It’s a bit like an 18-year-old announcing they want to be a partner at a City law firm. Maybe one day. But first comes trainee, then associate, then everything else. Capital raising works the same way: take the step you can take now, use it well and earn your way to the next one.

This is the part of the newsletter where I go a little bit off-piste, but it’s all useful stuff for anyone building/scaling a business (I hope so, anyway). 

I read somewhere once that Gus Levy told his team at Goldman Sachs to “be long-term greedy”, and I’ve never forgotten it. What he meant by that is: don’t chase everything now - make a few patient moves that give you power later.

I, personally, visualise it like the board game Hungry Hippos. 

You’ve got sugar-fuelled kids violently smashing buttons, trying to hoover up every marble before anyone else touches it. And that’s exactly how some entrepreneurs build: trying to eat the whole table instead of choosing a winning spot.

Those who ultimately win? They’re not blindly trying to grab every marble. They wait for the ones that change the game later. That’s long-term greedy: ignore the scramble, pick your moment and build power quietly while everyone else is banging on plastic for anything they can grab.

Tesco showed what’s possible when dilution is used deliberately: bigger markets, stronger business and shareholders who end up richer. So, if you’re going to dilute, make it strategic. Communicate clearly. Execute ruthlessly.

I’ve had a lot of conversations recently with clients wrestling with dilution, sequencing and timing. If that’s you, my inbox is open.

Because in this game, every little helps…

Till next time,

James