What actually happens when you raise a new round?

Fresh issue - company issues new shares, capital comes in, cap table changes. The math depends entirely on whether you're raising above or below your last round's price per share.

Up round

You issue shares at a higher price than last time. Everyone's percentage drops, but the rupee value of their holding goes up. Founders dilute on paper, gain in value. Clean, straightforward, the outcome everyone is building toward.

The tricky decision is option pool refresh - investors often ask for a top-up pre-money (which means founders bear the dilution, not the new investor). Watch for that in the term sheet!

Down round

You issue shares at a lower price than last time. This is where it gets complicated.

• Anti-dilution kicks in. Most institutional investors in India - whether a Sequoia, Elevation, or a mid-tier fund - negotiate this into the SHA. The standard is broad-based weighted average. This simply means the prior investor's preference shares convert at an adjusted (lower) price, so they effectively receive more equity without writing another cheque. The pain gets redistributed toward founders and ESOPs.
• Full ratchet exists but is rare - it fully resets the prior investor's conversion price to the new round price. If you ever see this in a term sheet, it's a red flag.
• Liquidation preference stock. Prior investors sitting on higher per-share preferences now create a more complex waterfall. In a liquidity event, a Series A investor's payoff per share is higher than the payoff to the investor who pumped money in a down round.
• ESOPs go underwater. Options granted at earlier strike prices (linked to fair market value or last round price) are now above the new share price. Employees hold options they can't profitably exercise. Repricing is possible but operationally messy.

Founders often come out of a down round with a materially smaller stake than the headline numbers suggest.