I am trying to understand why, when a startup raises funds, it dilutes its equity by issuing more shares, rather than just issuing a portion of the existing shares.
For example, let's say a startup begins with 100 shares. The founder owns 100 shares, which is 100% of the company. From what I have read, in a funding round, the company will issues more shares, e.g. 100 more, and give these to the investor. So now the founder owns 100 shares out of 200, which is 50% of the company, and the investor owns the same.
But instead of doing this, why doesn't the company stick to a total of 100 shares, and the founder just gives 50 shares to the investor? That way, both the founder and the investor own 50% of the company.