Funding rounds use a lot of jargon. Underneath, the maths is simple. Here’s what founders need to know.
The basic maths
- Pre-money valuation: what the company is worth before the new money.
- Post-money valuation = pre-money + new investment.
- Investor ownership = investment ÷ post-money.
Pre-money ₹40 crore + ₹10 crore raised = ₹50 crore post-money. The investor owns 10 ÷ 50 = 20%.
Dilution across rounds
Each round sells a slice of the company, shrinking everyone’s percentage:
| Round | Sold | Founders’ stake |
|---|---|---|
| Start | — | 100% |
| Angel | 10% | 90% |
| Seed (+10% ESOP pool) | 20% | ~65% |
| Series A | 20% | ~52% |
| Series B | 15% | ~44% |
Owning less of a much bigger company can still be worth far more. That is the founder’s bet.
Common instruments in India
- Equity shares and compulsorily convertible preference shares (CCPS), the usual instrument for VC rounds.
- Convertible notes, permitted for DPIIT-recognised startups subject to conditions (including a minimum amount).
- iSAFE / SAFE-style notes, adapted to Indian law by some investors, generally structured as CCPS.
Term-sheet clauses to understand
- Liquidation preference: in a sale, investors get their money back first (1× non-participating is founder-friendly).
- Anti-dilution: protects investors if a future round is at a lower price (“broad-based weighted average” is standard; “full ratchet” is harsh).
- Board composition: who controls the board.
- Protective provisions / affirmative rights: decisions that need investor approval.
- Founder vesting and ESOP pool size (and whether it comes out of the pre-money).
- Pro-rata rights, drag-along, tag-along, ROFR and information rights.
The process
- Build a list of investors who back your sector and stage.
- Get warm introductions where possible.
- Pitch. Expect many “no”s.
- A term sheet outlines key terms (mostly non-binding).
- Due diligence: legal, financial and tech checks.
- Definitive agreements (share subscription and shareholders’ agreements), then the money arrives.
- Regulatory filings: share allotment with the ROC, and FEMA reporting for foreign investment.
Hire a startup lawyer for term sheets. A good one pays for themselves many times over.
Your takeaway
Know your numbers, model dilution before you negotiate, and focus on the terms that affect control and exits, not just valuation. Next: build a pitch deck investors actually read.