Getting a seed round from a VC | Stocks and bonds | Finance & Capital Markets | Khan Academy | Summary and Q&A

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January 29, 2009
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Khan Academy
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Getting a seed round from a VC | Stocks and bonds | Finance & Capital Markets | Khan Academy

TL;DR

Start-up investment involves determining the value of the company before additional funding is received, which affects the percentage ownership of investors and founders.

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Questions & Answers

Q: What is pre-money valuation in start-up investment?

Pre-money valuation refers to the determination of a start-up company's value before receiving additional funding. It helps determine ownership percentages for investors.

Q: How does pre-money valuation affect ownership percentages?

A higher pre-money valuation means investors can acquire a smaller percentage of the company with their investment, while a lower valuation allows for a larger ownership stake.

Q: How is share allocation determined in start-up investment?

Share allocation is usually based on the pre-money valuation. Additional shares may be issued to investors to accurately represent their investment value.

Q: Why is pre-money valuation important in start-up investment?

Pre-money valuation determines the ownership percentages of investors and founders, impacting their control over the company and potential returns on investment.

Summary & Key Takeaways

  • The concept of pre-money valuation is explained, which determines the value of a start-up company before additional investment.

  • The allocation of shares to investors is demonstrated using a hypothetical example, showing how the pre-money valuation affects ownership percentages.

  • The importance of pre-money valuation in determining the percentage ownership of investors and founders in the company is highlighted.

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