[webwright]

Option A: Series B investor buys shares from the Company. Company issues new shares and the Series B guy owns 20% of the company. This dilutes everyone else's ownership (for him to own 20%, everyone else's stake has to come down).

Option B: He buys all of his shares from existing shareholders. This requires no additional shares so people who are NOT cashing aren't diluted at all.

I'm just guessing here-- I've never taken money off the table. But I can't imagine it working any other way.

[skmurphy]

Option B puts no money into the company. In option A existing stockholders are diluted but the company has more cash. So "taking money off the table" comes at the expense of what the company can raise. If there was additional demand for the stock (as evidenced by someone willing to pay for the shares in Option B) then this could have resulted either in a higher stock price (and less dilution for more money) or more funds raise (possibly with more dilution).