---
title: "Equity dilution across funding rounds"
subject: "Entrepreneurship Development"
chapter: 6
key: "semester_7/entrepreneurship_development:equity-dilution-valuation"
source: https://www.bctengineer.com/q/semester_7/entrepreneurship_development/equity-dilution-valuation
site: BCT Engineering
---

# Equity dilution across funding rounds

Entrepreneurship Development · Chapter 6: Growth and Startup Financing

- Asked in: year not given, 6 marks
- Video: [Understanding equity dilution in startups](https://www.youtube.com/watch?v=7eRm-HDzNbs) — Rajat Yadav
- Answer checked by Claude Opus 5.5 (high effort) on 2026-10-14
- Page: https://www.bctengineer.com/q/semester_7/entrepreneurship_development/equity-dilution-valuation
- Whole chapter: https://www.bctengineer.com/md/semester_7/entrepreneurship_development/chapter-6

## Question

The founders own 100% of a startup. In the seed round an angel invests Rs 50,00,000 at a pre-money valuation of Rs 2,00,00,000. A year later a venture capital fund invests Rs 1,50,00,000 at a pre-money valuation of Rs 4,50,00,000. Calculate the post-money valuation and ownership of each party after each round.

## Short answer

After seed: post-money Rs 2.5 crore, founders 80%, angel 20%. After Series A: post-money Rs 6 crore, founders 60%, angel 15%, VC 25%.

## Answer

**Post-money valuation = pre-money valuation + investment.**
Investor share = investment / post-money.

#### Seed round
$$
\text{Post-money} = 2{,}00{,}00{,}000 + 50{,}00{,}000 = \text{Rs } 2{,}50{,}00{,}000
$$

$$
\text{Angel share} = \frac{50{,}00{,}000}{2{,}50{,}00{,}000} = 20\%
$$

Founders keep $100 - 20 = 80\%$.

#### Series A round
$$
\text{Post-money} = 4{,}50{,}00{,}000 + 1{,}50{,}00{,}000 = \text{Rs } 6{,}00{,}00{,}000
$$

$$
\text{VC share} = \frac{1{,}50{,}00{,}000}{6{,}00{,}00{,}000} = 25\%
$$

Existing holders are diluted to 75% of their earlier share:

$$
\text{Founders} = 80\% \times 0.75 = 60\%
$$

$$
\text{Angel} = 20\% \times 0.75 = 15\%
$$

#### Cap table after Series A
| Holder | After seed | After Series A | Value at Rs 6 crore |
|---|---|---|---|
| Founders | 80% | 60% | Rs 3.6 crore |
| Angel | 20% | 15% | Rs 0.9 crore |
| VC | - | 25% | Rs 1.5 crore |
| Total | 100% | 100% | Rs 6.0 crore |

The angel's stake value rose from Rs 50 lakh to Rs 90 lakh even though the percentage fell, because valuation grew faster than dilution. A rule of thumb: sell 15-25% per round to keep control.

**Answer:** After seed: post-money Rs 2.5 crore, founders 80%, angel 20%. After Series A: post-money Rs 6 crore, founders 60%, angel 15%, VC 25%.

## Check yourself

The answer's key points as multiple-choice questions, with the correct option and why.

1. How is post-money valuation calculated?
   A. Pre-money valuation minus investment
   B. Investment divided by pre-money valuation
   C. Pre-money valuation x investment
   D. Pre-money valuation plus investment
   Answer: D. Post-money = pre-money + investment, e.g. 2 crore + 50 lakh = 2.5 crore. (Key point: Post-money valuation formula)

2. The angel invests Rs 50 lakh at a Rs 2 crore pre-money valuation. What share does the angel get?
   A. 25%
   B. 50%
   C. 20%
   D. 80%
   Answer: C. Share = investment / post-money = 50 lakh / 2.5 crore = 20%, leaving founders 80%. (Key point: Seed round ownership)

3. The VC invests Rs 1.5 crore at Rs 4.5 crore pre-money. What is the VC's share?
   A. 33.3%
   B. 25%
   C. 75%
   D. 30%
   Answer: B. Post-money is 6 crore, so the VC share = 1.5 / 6 = 25%. (Key point: Series A share)

4. After Series A, what are the founders' and angel's ownership?
   A. Founders 60%, angel 15%
   B. Founders 55%, angel 20%
   C. Founders 80%, angel 20%
   D. Founders 65%, angel 10%
   Answer: A. Existing holders keep 75% of their stake: 80% x 0.75 = 60% and 20% x 0.75 = 15%. (Key point: Dilution of existing holders)

## Related in Entrepreneurship Development

- [Seed funding, angel investors and venture capital](https://www.bctengineer.com/question.md?key=semester_7%2Fentrepreneurship_development%3Aseed-angel-venture-capital) — Entrepreneurship Development, chapter 6

## Related in other subjects

- [EPS and book value; capital Rs 5,00,000](https://www.bctengineer.com/question.md?key=semester_7%2Fproject_engineering%3Aeps-bv-capital-500000-2000-shares) — Project Engineering, chapter 6
- [EPS; total capital Rs 15,00,000](https://www.bctengineer.com/question.md?key=semester_7%2Fproject_engineering%3Aeps-capital-1500000-pref-loan-a74) — Project Engineering, chapter 6
- [EPS and book value; ABC project Rs 6,00,000](https://www.bctengineer.com/question.md?key=semester_7%2Fproject_engineering%3Aeps-bv-abc-project-600000-b79) — Project Engineering, chapter 6
- [EPS and book value; Rs 10,00,000, 3500 shares](https://www.bctengineer.com/question.md?key=semester_7%2Fproject_engineering%3Aeps-bv-capital-1000000-3500-shares) — Project Engineering, chapter 6