Let's Start With a House

Four friends, Aman, Bhavna, Chirag and Divya, decide to buy a house together for ₹1 crore. Each puts in ₹25 lakh, so each owns 25%.

Splitting things in percentages gets messy, so they agree that the house will be divided into 100 shares. Each friend gets 25 shares.

Share Price, Face Value and Share Premium

If the house costs ₹1 crore and is split into 100 shares, each share is worth:

₹1,00,00,000 ÷ 100 = ₹1,00,000 per share

That is the share price: what someone actually pays for one share.

Now the twist. On paper, each share certificate says it is worth just ₹10. That is the face value. Think of it as the printed price on the certificate. It is a legal and accounting number fixed when the shares are created. It does not change because the house became more valuable.

So where does the remaining ₹99,990 go? That extra amount is called the share premium.

Why this matters for your startup: When an investor buys shares in your company at ₹5,000 per share and the face value is ₹10, your company's books show ₹10 per share as share capital and ₹4,990 per share as securities premium. Both are money the investor put in. You will see both lines on your balance sheet after every round.

Now, the Fundraise

A few years later, the friends want to renovate. They need ₹30 lakh. None of them has spare cash, so they invite a fifth friend, Esha, to come in.

The house is now worth ₹1.2 crore. That is the value before Esha's money comes in, also called the pre-money valuation.

New share price: ₹1.2 crore ÷ 100 shares = ₹1,20,000 per share.

Esha puts in ₹30 lakh, so she gets ₹30,00,000 ÷ ₹1,20,000 = 25 new shares.

Important: nobody sold their shares to Esha. The house simply issued 25 new shares, and the ₹30 lakh went into the house (the renovation), not into anyone's pocket. That is exactly what a startup fundraise is.

Notice three things:

• Each original friend went from 25% to 20%. That drop is called dilution.
• Nobody lost money. Each friend's 25 shares are worth 25 × ₹1,20,000 = ₹30 lakh, more than the ₹25 lakh they put in.
• The house is now worth ₹1.2 crore + ₹30 lakh = ₹1.5 crore. That is the post-money valuation.

So What Is a Fundraise?

A fundraise is your company issuing new shares to an investor in exchange for money that goes into the company. The investor gets ownership. You get capital to grow. Your percentage goes down, but if you use the money well, the value of what you own goes up.

Primary Issue vs Secondary Sale

There are two ways shares can change hands. Only one of them puts money into the company.

Primary issue: the company creates new shares. This is what happened with Esha. The house created 25 new shares for her, and her ₹30 lakh went into the house for the renovation. Total shares went from 100 to 125, so everyone else's percentage went down.

Secondary sale: an existing owner sells their own shares. Now say Aman needs cash. He sells 5 of his 25 shares to Esha at ₹1,20,000 each, which is ₹6 lakh. That money goes to Aman, not the house. No new shares are created, the house still has 125 shares, and only Aman's stake shrinks.

Side by side:

In startup terms, when founders say they raised a round, they mean a primary issue. A round can sometimes include a small secondary, for example an early angel selling part of their stake to the new investor. We will go deeper into secondaries later in the series.

The Rounds, Explained Like a House Project

Startups raise money in stages. Each stage has a name, but the name is really a shorthand for how much risk is left in the business.

Middle 50% of disclosed rounds for Indian startups, October 2025 to September 2026. Source: Tracxn. Undisclosed rounds are excluded, so smaller deals are likely under-represented. Friends and Family and Pre-Series A are not tracked as separate stages. The Pre-IPO sample is small and mixes deal types, so no range is quoted.

A Guide to Figuring Out Which Round You Are Raising

Founders often pick a round name based on how much they want to raise. Investors look at it the other way around: what have you proven? Answer these questions honestly, top to bottom. The first "No" is roughly where you are.

Two honest caveats:

• Round names are not standardised. One fund's "seed" is another fund's "pre-Series A". Focus on what you have proven, not the label.
• Raising a "bigger" round than your proof supports usually means a valuation you cannot grow into. That makes the next round harder.

Common Founder Mistakes

• Naming the round by the amount. Raising ₹10 crore does not make it a Series A if you have not shown product-market fit.
• Confusing pre-money and post-money. "₹30 lakh at ₹1.5 crore" means 20% if ₹1.5 crore is post-money, but only about 16.7% if it is pre-money. Always ask.
• Thinking dilution means losing money. Your percentage falls, but the value of your shares should rise if the money is used well.
• Ignoring face value and premium. They show up in your balance sheet, your filings and your share allotment paperwork. Your CA will ask.

This post is general information, not financial, legal or tax advice. It is written to help founders recognise the terms they will meet when they raise. How the rules apply depends on how your round is structured and who is investing, so check your own deal with your CA or company secretary before you sign.

Next in the Series

Part 2: Same Money, Different Paper. Esha gave ₹30 lakh. But did she get plain shares, preference shares, or a promise of shares later? We look at the instruments Indian VCs actually use: equity, CCPS, CCDs and iSAFE. Read Part 2 now.