In most cases that I have seen in my 10 year entrepreneurial journey, first time Entrepreneurs do
not understand Equity Dilution and more importantly, do not know the maths behind it.
Even I didn’t know a word about this when I started, but not for long, as Alok was there to my rescue.
The mathematics of valuations is not very complicated. A few terms to understand it are:
- Pre-Money: This is a number which defines the current valuation of your company. This is generally decided by the Investor. It’s the amount the Investor feels the company is worth.
- Investment: The amount of money put in the company / the Entrepreneurs wish to raise.
- Post-Investment: It is Pre-Money + Investment, that is, the valuation of your company after it is funded.
- Dilution: The amount of stake that needs to be given to the Investors (Investment/Post-investment)%
Attached here (Equity Dilution Calculator.xlsx) is a very simplified Equity Dilution Calculator which anybody can use to understand the maths that goes behind an Investment Round.
About me
I am a 35 year old first generation Tech & Internet entrepreneur. Co Founder & CEO of ideacts innovations. An Internet Media company funded by Sequoia Capital and Saama Capital. I am an Ex Mobile2win employee and possibly the first entrepreneur mentored by Alok. I am also the Author of ‘Breaking Out and Making Big’, a no-nonsense book on new age startups and entrepreneurship….
Hope it helps…
@rudrajeet
facebook.com/rudrajeet
Karthik Venkat
Hi Rudrajeet,
The funding concepts shared are good! 🙂 I have passed through this stage & content by Alok on TRHS helped us understand well.
Keep spreading your knowledge!
Best,
Karthik
Rudrajeet Desai
thanks for the feedback Karthik
Raghvendra Singh
This is very useful information. Thanks a lot for sharing this. 🙂
Rudrajeet Desai
happy to know you like it Raghvendra – thanks for the feedback
Alok Rodinhood Kejriwal
This is what I had written previously:
Do Finance terms bother you?
Do you get flummoxed when you hear of Pre and Post Money, Dilution Percentages etc?
Don’t understand the V of Valuation?
I get it and therefore this Common Sense PPT for those who DON’T know and DON’T want to ask 🙂
Please share you feedback… It always helps…!
Rudrajeet Desai
Amen to that Sir… I still sometimes remember my days and how scary some of these terms used to sound, till you cleared them for us…
Neeraj Pathak
Hi Rudrajeet and others,
Can you suggest how to share equity among founding partners. What are the key points to be included in arriving at a figure to be distributed among them.