The answer is yes and no, because virtual shares are dilutive in percentage terms, but not in economic terms (which is what matters).
To explain, let’s take an example: A limited liability company has a share capital of EUR 25,000 with 25,000 shares at EUR 1 each and an additional 2,500 virtual shares issued (with an arithmetical nominal amount of EUR 1 each). This means in total there are 27,500 (real and virtual) shares. Employee A is allocated 500 of the 2,500 virtual shares. Thus, he has a participation of 500/27,500 or ~1.82%.
If the share capital is now increased by EUR 6,000 as part of a financing round, there will then be a total of 33,500 (real and virtual) shares. As a result, our employee would only have a shareholding of 500/33,500, i.e., ~1.49 %. In percentage terms, the employee’s shareholding therefore has been diluted.
But: The economic value of each real and virtual share has not changed due to the capital increase, because the entire company has become worth more: Let’s assume that the company was worth EUR 5,500,000 before the capital increase (i.e., pre-money). In this case, the value of one share, taking into account the virtual shares (in VC-speak: fully diluted), would be EUR 200. The investor who takes over the new shares with a nominal value of EUR 6,000 therefore must pay EUR 1,200,000 to the company.
After the capital increase (i.e., post-money), the company then is worth EUR 5,500,000 + EUR 1,200,000 = EUR 6,700,000. Thus, the value of each of the 33,500 real and virtual shares remains at EUR 200.
It is therefore important to understand that a virtual shareholding does not give a person a certain percentage in the company, but a certain number of virtual shares. Incidentally, this is no different from a real shareholding: A shareholder also holds a certain number of shares and not a fixed percentage in the company. If he wishes to avoid dilution in percentage terms due to a capital increase, he has the right to acquire new shares against payment of the issue price – in our example EUR 200. If he does not pay, his shareholding is diluted in the same way as with virtual shares.