Sneaky Trick Startups Play | Business | Sarthak Ahuja

There’s a Sneaky way in which startups raise their valuation even when the valuation is down…
Imagine a startup is going through a hard time and unable to raise capital…
They have old investors but none of the new folks want to come in…
So they go back to their existing investors saying there’s no money coming in, we want you to give us some amount so that we can last another 4-6 months and find a bigger investor…
Now the existing investor will have to put in money to save his investment from going down to zero, but he also wants to reduce the valuation and get more shares for the money he puts in…
But you can’t do a round with lower valuation because if the news goes out, the startup will not be able to raise more…
So in this case, they either maintain the existing valuation or put money at a higher valuation for the public eye…
These are primary shares, which means the company issues new shares to investors at a high valuation… example 1 shares at Rs 1000 each
Sneakily, simultaneously, they take some secondary shares (buy extra existing shares from the founder at a negligible or much cheaper price)… say, 1 shares at Rs 100 each
So overall, their cost of the shares averages out to a lower value of Rs 550 per share…
While for the public eye, the price per share is Rs 1000 each, at which the company would do a Press Release and create hype.
There are more ways people do this jugglery… unethically while lawfully.
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A Chartered Accountant with about 10 years of experience in areas of Tax Advisory, Startup Consulting, Fundraising, Audits, Deal Advisory, Business Modelling and contract CFO services.
Winner of the ISB Young Leader Award 2017 and the Best All Rounder, PGP Class of '17, Sarthak has also been published about in the leading financial newspapers such as The Financial Express as possibly the youngest Indian to have completed the courses of CA, CS and CMA along with a graduate degree in Financial & Investment Analysis from University of Delhi, all by the age of 23 years.

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