Equity Funding – Additive, not Dilutive

Matt Robinson, from GoCardless, at Google Campus’ fund raising #campusedu event

What?

Dilutive = money out (previous stakeholders cashing out)
Additive = money in (to company’s coffers)

How & Why?

  1. Dilutive:
    Your pre-money valuation is £200.
    I invest another £100, but £50 of that is by purchasing part of founders’ shares.
    Founders pocket £50, post-money valuation is £250, I own 40% of the company
    But only 50% of my investment is being used to generate a return for me. 
  2. Additive: 
    Your pre-money valuation is £200.
    I invest another £100, all in newly issued shares.
    Post-money valuation is £300, I own 33% of the company.
    But all of my investment is being used to generate a multi-x return for me – the reason I invested.

Also, signaling:  If existing investors are selling their stake as part of a (pre-IPO) fundraising, it may send a very strong negative signal to the market – that those on the inside don’t believe in the business. Can’t be good sign for new investors (and your company’s valuations), can it?

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