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1. This post is written keeping the market conditions of India in mind and may not apply to other geographies.
2. The table shows somewhat ideal scenarios just for understanding, in real world there are many more variations.
3. Don’t mistake table as set of fixed rules, these are just some possible combinations to enable you to create your own scenarios
4. Most of the times these things are function of the main investors subjective opinion, competition for the deal
5. This is not description of what my firm The Morpheus follows. Methods followed by The Morpheus could be different depending on the exact scenario
Update: (answers to the questions that have come on the post)
What percent of equity that will be diluted to the investors at each step?
This can be calculated fairly easily
- Equity given to the investors = Total money invested / Post-money valuation of the company
- Post money valuation = Pre-money valuation + Total money invested
- Pre-money valution = Valution of your company before taking the investment
- Pre-money valuation = 1 Cr
- Money being invested = 15 L
- Post-money valuation = 1Cr + 15 L = 1.15 Cr
- Equity given to the investors = 15 L / 1.15 Cr = 13.04 %
How did you come up with the pre-money calculations?
- Startup valuations are essentially an art, end of the day valuation of a company on which both the startup and the investor agree on
- I have based these numbers on my observations and understanding of the preferences of Indian startups and Indian investors operating at different stages
- I have been directly / indirectly involved in a good number of funding deals / discussions
- Also there are deals in which I was not involved but i have the information about them
- I have a personal bias towards revenue generating / cash flow positive startups