Idea lights up,creates logo and and put a name,here begins your startup ventures.Your company will need a legal structure and government will ask a lot from you.Now269 you need to rent a server, may be hire one or two,but we need more money.So273 you go looking for investors.The first might come from friends, family or crowd sourcing,anyway you have the seed money.
now suppose someone whom you know invested 50k on your idea.You286 and your friend with whom you started the venture decide to issue a 100k shares and split 40k among each other and give the rest 20k to your seed investor.So271 the total valuation of your company stands at 250k because he gave 50k for the 20k shares.
now the business expands and you need a room with more employees,you need more money.You274 go for the series A investment.You275 go asking for fund from angel investors and venture capitalists,terms which you might already know.You266 propose your idea and explains your business model.They interview you and finds you competent,they decides to invest.Now266 they value your company.There is pre-money valuation and post-money valuation. Pre money valuation is where you currently put your company.Post301 money valuation is the value of the company after the series A investment.The post money valuation is the one usually referred in negotiations.The series A investment divided by the post-money valuation is the investors share in startup(imagine your company had 100 million pre valuation and VCs invested 25 million to it,your post value became 125 million.Now313 the 25 million investment amounts to the 20% share in the company which is now valued at 125 million).Investors usually negotiates for low post money to keep a larger share.
Now imagining the about the company we mentioned above,if we manage to lure 1.5 million at a post money valuation of 6 million,the share we have to give for them will be the 25 % share.We have to dilute the share,after the series A investment ,the cumulative share of the three of us will be the 75% share and the rest share is issued by the company,like federal banks issuing currency to be given to the new investors.Our shares are diluted proportionately.But how many shares must be issued?our 100k shares amount to 75%,so by simple math 25% is roughly 33k shares,so the total amount of share becomes 133k.Now297,1.5 million dollars invested by the VCs and angel investors for the 33k shares put the share value of the company at 45 rupees per share.So265 one founder now holds 40k*45 which is 1.8 million.This issuance of new shares is called Capital rise.Now295 the investment go for Series A,Series B,Series C etc.,Most of the time the founders stocks are diluted unlike Facebook where Zuckerberg tricked Eduardo Savarin to dilute his shares instead of his or Sean Parkers'.Shares can also be split so the number of stocks may not remain,it can be doubled or tripled along with others stock the same always and this can cause effect when the company is put on stock market.
Now the exit can be in two ways,sell them to big companies like flipkart or put them on stock market like infosys. Selling to big companies will make you stay at the company for further development of company,the big companies will provide the shares equivalent to the share the founders have on the company and the other investors usually sell their shares off.This is called share vesting.Going for IPO puts the company on stock market for the public to buy and the sell the stock .
This is a simple explanation about the funding dealing only with the essential concepts with an aim to understand.