Fund Raising Advisory (Seed, Angel & Venture Capital)

We are a practising Chartered Accountancy firm, not a broker or registered investment banker. Our role in fundraising is advisory, not intermediation for commission. We advise on strategy, structure, valuation, regulatory compliance, and documentation — the CA and financial advisory layer that sits alongside (or in place of) legal counsel and investment bankers. We do not charge a success fee as a percentage of funds raised. We charge professional fees for advisory and compliance work. This distinction matters: our interests are aligned with your long-term compliance health, not with closing a particular deal at any cost.

Angel tax was the popular name for the provision under Section 56(2)(viib) of the Income Tax Act 1961, which taxed the premium received by a company on issue of shares above the Fair Market Value (FMV) of those shares as 'income from other sources' in the hands of the company. For over a decade this was a genuine risk for startups raising at a valuation above book value, particularly from resident investors without DPIIT recognition. This is now historical: the Finance Act 2024 abolished Section 56(2)(viib) angel tax for all classes of investors — resident and non-resident alike — with effect from 1 April 2025. For share allotments made on or after that date, there is no angel tax exposure regardless of the premium charged over FMV. We still recommend obtaining a valuation report from a SEBI Category I Merchant Banker or registered valuer under Rule 11UA before allotment — not to protect against a tax that no longer applies, but because it satisfies FEMA pricing-guideline requirements for foreign investors and creates a defensible record should a later share transfer be scrutinised under Section 50CA or Section 56(2)(x).

DPIIT recognition is not mandatory for fundraising — you can raise funds without it. It remains useful for two main reasons: (a) simplified compliance for certain labour and environment laws for the first 3 years, and (b) access to SIDBI Fund of Funds, government procurement preferences, and various state government startup schemes. Note that the angel tax exemption DPIIT recognition once conferred under Section 56(2)(viib) is no longer a relevant benefit, since angel tax itself was abolished for all investors effective 1 April 2025 (Finance Act 2024). Eligibility: the entity must be a private limited company, LLP, or registered partnership incorporated for not more than 10 years, with turnover not exceeding ₹100 crore in any financial year, and must be working towards innovation, development, or improvement of products, services, or processes. We file DPIIT recognition applications as part of our startup services engagement.

Form FC-GPR (Foreign Currency — Gross Provisional Return) is the mandatory RBI reporting form that must be filed on the RBI FIRMS portal (firms.rbi.org.in) whenever a company allots shares to a non-resident investor (whether individual or corporate). It must be filed within 30 days of the date of allotment of shares. Required attachments include: FIRC from the company's bank confirming receipt of foreign funds, KYC of the foreign investor (certified copy of incorporation documents if corporate, passport if individual), valuation certificate, and the Board resolution for allotment. Failure to file within 30 days triggers compounding proceedings under FEMA — the fine is determined by the RBI compounding authority based on the amount involved and period of delay.

A term sheet is a non-binding summary of the key terms on which an investor proposes to invest — it precedes the full subscription agreement and shareholders' agreement. Key clauses to examine carefully: (1) Liquidation Preference — participating or non-participating, and what multiple; a 2x participating preference means the investor gets 2x their money first, then also participates in the remaining proceeds as if they converted to equity — this can leave founders with very little in a modest exit. (2) Anti-dilution — full ratchet (most investor-friendly, most founder-unfriendly) vs weighted average (more balanced) vs no anti-dilution; full ratchet can cause massive dilution to founders in a down round. (3) Board composition — how many investor directors, veto rights, reserved matters. (4) Drag-along — investor's ability to force all shareholders to sell if investor receives an offer at a specified price or return. (5) Information and inspection rights — what financial data must be shared and how often. (6) Founder vesting / good leaver / bad leaver provisions — what happens to founder shares if a founder exits before a certain date.

Pre-money valuation is the company's value before the new investment is added. Post-money valuation is the pre-money valuation plus the new investment. The investor's ownership percentage after the round equals the investment amount divided by the post-money valuation. Example: company valued at ₹10Cr pre-money, investor puts in ₹2.5Cr — post-money valuation is ₹12.5Cr, investor owns 20%. Your dilution as founder depends on the pre-money valuation agreed — not the post-money figure. When negotiating, always verify which figure is being stated when an investor mentions 'valuation'.

CCPS stands for Compulsorily Convertible Preference Shares. They are preference shares that must convert to ordinary equity shares on a fixed date or on specified conversion events (such as an IPO, a subsequent round, or a fixed maturity date). VC investors prefer CCPS over ordinary equity because: (a) preference shares can carry liquidation preference — the investor gets their money back first in any liquidity event before ordinary shareholders; (b) CCPS is classified as equity for FDI purposes under FEMA, avoiding the complications of ECB regulations that apply to debt instruments; (c) CCPS allows investor-protective clauses (anti-dilution, information rights) to attach to the share class rather than requiring shareholder-level agreements that can be harder to enforce. For founders, CCPS is preferable to equity debt instruments because conversion rights are retained within the company's authorised share capital framework.

The Companies Act 2013 does not have a specific provision for convertible notes as an instrument — unlike the US, where convertible notes are a well-defined instrument. In India, convertible notes are typically structured as Optionally or Compulsorily Convertible Debentures with appropriate conversion triggers. For foreign investors, the FEMA treatment of optionally convertible instruments (where conversion is at investor's option) is that they may be treated as External Commercial Borrowings (ECB) rather than FDI — which triggers different compliance requirements including minimum maturity period, all-in cost ceiling, and ECB reporting. Compulsorily Convertible Debentures (CCDs) are generally treated as equity for FDI purposes. PNPC strongly recommends using CCPS rather than convertible notes for most Indian startup funding rounds, particularly with foreign investors.

Missing the FC-GPR deadline triggers a FEMA violation under the Foreign Exchange Management (Non-debt Instruments) Rules, 2019. The company must file a compounding application with the RBI's Compounding Authority. The compounding fee is levied under FEMA Section 15 and calculated based on the amount involved and the period of delay — the formula is prescribed by the RBI. In addition to the fine, the company cannot receive any further foreign investment until the violation is compounded and closed. The compounding process typically takes 6–18 months and involves preparing a legal memo explaining the delay, paying the compounding fee, and receiving a compounding order from the RBI. The compounding order is a public document.

SAFE (Simple Agreement for Future Equity) is an instrument invented by Y Combinator for US startups — it gives an investor the right to receive equity in a future funding round, typically at a discount to the price of that round and/or with a valuation cap. A pure SAFE has no direct legal recognition in Indian company law. When used with a foreign investor, a SAFE is not a recognised FDI instrument under FEMA — it creates regulatory uncertainty about whether it should be reported as ECB, whether it triggers FC-GPR at issuance or only at conversion, and whether the discount and cap qualify as permissible terms. PNPC advises against pure SAFEs for Indian companies and recommends structuring the economic intent as a CCD or CCPS with appropriate terms.

Under Rule 11UA of the Income Tax Rules 1962, the Fair Market Value of unlisted equity shares can be determined using either: (a) the Net Asset Value method (book value of assets minus liabilities, divided by number of shares), or (b) the Discounted Cash Flow (DCF) method as determined by a merchant banker or registered valuer. The company can elect which method to use. Section 56(2)(viib) angel tax — which historically relied on this FMV computation to test share premiums — was abolished for all investors effective 1 April 2025 (Finance Act 2024), so this specific tax trigger no longer applies. Rule 11UA valuation remains relevant for two other live purposes: FEMA requires foreign investment to be priced at or above the Rule 11UA (or internationally accepted pricing methodology) fair value as a pricing-guideline floor, and Section 50CA/56(2)(x) can still apply FMV benchmarking to share transfers between parties at less than fair value.

Most sectors allow FDI under the 'automatic route' — no prior government approval required; the company simply complies with FEMA reporting obligations (FC-GPR). However, certain sectors require 'government route' approval — prior approval from the Ministry concerned or the Foreign Investment Facilitation Portal (FIFP): defence (beyond 74%), broadcasting, print media, multi-brand retail, insurance beyond 74%, telecommunications in some sub-sectors, and banking beyond 49%, among others. Additionally: investors from countries sharing a land border with India (Pakistan, China, Bangladesh, Nepal, Bhutan, Myanmar, Afghanistan) require government route approval regardless of sector. Investments from countries identified as 'specified territories' under FEMA require separate consideration.

Form FC-TRS (Foreign Currency — Transfer of Shares) is the RBI reporting form for the transfer of shares between a resident and a non-resident — either from a resident seller to a non-resident buyer, or from a non-resident seller to a resident buyer. It must be filed on the RBI FIRMS portal within 60 days of the date of transfer. FC-TRS is required in: secondary transactions (existing investor selling to a new foreign buyer), founder liquidity events (a founding team member, as a resident, selling shares to the existing foreign VC), and any other cross-border share transfer. Filing is initiated by the AD (Authorised Dealer) bank — which means the relevant bank must be involved in the transaction from the outset, not added at the filing stage.

Yes — most term sheets and shareholders' agreements include Information Rights provisions that require the company to periodically provide: quarterly management accounts (within 30–45 days of quarter end), annual audited financial statements, annual budget and business plan, notice of any material adverse event, notice of litigation, and notification of any regulatory non-compliance. Additionally, Inspection Rights provisions typically allow the investor (or their representatives) to inspect the company's books and records at reasonable notice. These rights are contractual — they are in addition to the statutory rights of shareholders under the Companies Act, which include the right to receive a copy of audited financial statements and to attend the Annual General Meeting.

A cap table (capitalisation table) is a spreadsheet that lists every holder of equity or equity-equivalent instruments in the company — founders, early investors, ESOP holders, convertible instrument holders — with their number of shares or instruments, ownership percentage on a basic and fully-diluted basis, and the price at which their shares were issued. It is the definitive record of who owns what. During fundraising, investors request a fully-diluted cap table to understand their post-investment ownership, to verify that past allotments are clean, to check for any anti-dilution provisions from earlier rounds that would be triggered, and to identify any FEMA-relevant shareholders (non-residents) whose past compliance must be verified.

Standard investor diligence covers: (1) Legal — all incorporation documents, MoA, AoA, all Board and shareholder resolutions, all prior investment agreements, employment agreements with key employees, IP assignment agreements, material contracts with customers and vendors; (2) Financial — 3 years audited financials, current year management accounts, financial model, bank statements, outstanding liabilities; (3) Tax — 3 years ITRs, GST returns, TDS returns, any notices from tax authorities; (4) Regulatory — all licences and registrations, any FEMA-related documents from past foreign investment, any pending regulatory proceedings; (5) HR — offer letters and employment agreements for key team members, ESOP documentation; (6) IP — trademark and patent certificates, software IP assignment agreements.

Seed and angel rounds from Indian networks: typically 6–12 weeks from first meeting to wire, though this can stretch to 6 months with slow-moving angels or complex negotiations. Series A from a domestic VC: typically 3–5 months from term sheet to wire. Series A from a foreign VC fund: typically 4–6 months — the additional FEMA compliance and foreign law review of the Shareholders' Agreement adds time. The regulatory filing obligations (PAS-3 within 30 days of allotment, FC-GPR within 30 days of allotment, MGT-14 within 30 days of resolution) have fixed deadlines that do not adjust for deal fatigue or delayed closes. PNPC tracks all regulatory deadlines from the moment a term sheet is signed.

A liquidation preference gives preferred shareholders (usually VC investors holding CCPS) the right to receive a fixed amount — typically 1x their investment, but sometimes 1.5x or 2x — before ordinary shareholders (usually founders) receive anything in a liquidity event (sale, merger, or winding up). After the preference is paid, the investor may either (a) participate further alongside ordinary shareholders in the residual proceeds (participating preferred) or (b) have already received their entitlement and not participate further (non-participating preferred). In a large exit, a non-participating 1x preference with a low multiple makes little practical difference. In a modest exit where proceeds are close to the investment amount, a 2x participating preference can leave founders with very little or nothing.

Anti-dilution protection adjusts an investor's conversion ratio (for CCPS or CCDs) if the company subsequently raises money at a lower valuation (a 'down round'). The three main types: (1) Full ratchet — the investor's conversion price is reset to the new lower price; this is maximally investor-friendly and can cause severe dilution to founders in a down round; (2) Broad-based weighted average — the new conversion price is a weighted average of the old and new prices, weighted by the total shares outstanding; this is the most common and most balanced approach; (3) Narrow-based weighted average — similar to broad-based but only counts certain shares in the weighting, resulting in more adjustment toward the investor; (4) No anti-dilution — investor bears dilution equally with founders; uncommon for professional investors. Founders should strongly resist full ratchet provisions.

A drag-along right allows a majority shareholder (often specified as the investor or a combination of investors and majority founders) to force all other shareholders to sell their shares to a third-party acquirer on the same terms. In VC terms sheets, drag-along is typically triggered when a specified percentage of investors approve a sale — the concern is that investors can force a sale that founders oppose. Founder-protective drag-along provisions include: requiring founder consent alongside investor consent to trigger the drag; setting a minimum return threshold for the drag to be exercisable; specifying that the acquirer in a drag-along must take all shares including preference shares at the same per-share consideration; and restricting the drag from being triggered within the first 3–5 years.

Yes — founder liquidity as part of a primary funding round (commonly called a 'secondary' component) is increasingly common in Indian VC deals, particularly from Series A onwards. The investor purchases some existing founder shares (from the founder as seller) simultaneously with the primary subscription of new shares. This is structurally a share transfer, not a share issuance — it triggers capital gains tax in the hands of the selling founder. Following the Finance (No. 2) Act 2024 changes effective 23 July 2024, long-term capital gains (unlisted shares held for more than 24 months) are taxed at 12.5% without indexation under Section 112, a lower headline rate than the earlier 20%-with-indexation regime but computed on the full gain. Founders should get a current computation before assuming the old rate applies. If the buyer is a non-resident, FC-TRS must be filed within 60 days of transfer. The parties should also confirm the transfer price is defensible against Section 50CA (deemed consideration for the seller) and Section 56(2)(x) (deemed income for the buyer if acquired below FMV) — these are separate, still-live provisions distinct from the now-abolished Section 56(2)(viib) angel tax.

An Employee Stock Option Pool (ESOP pool) is a block of shares reserved in the company's authorised share capital for future grant to employees, advisors, and key hires under a SEBI-compliant ESOP scheme approved under Section 62(1)(b) of the Companies Act. Investors require ESOP pool creation or expansion at each round because: (a) a funded company will need to hire senior talent that commands equity compensation; (b) having an available ESOP pool avoids the need for a dilutive resolution during the term of investment; and (c) having reserved shares for future grants is evidence of a credible talent strategy. The critical point: investors typically require that the ESOP pool be created from the pre-money valuation — meaning the dilution from reserving ESOP shares comes from the founders' existing ownership, not from the post-money total.

Section 50CA of the Income Tax Act 1961 deems the consideration for transfer of unlisted shares to be the FMV of those shares if the actual consideration is less than FMV — for capital gains tax computation in the hands of the seller. Separately, Section 56(2)(x) taxes the recipient when they receive shares at a consideration below FMV — the difference between FMV and actual consideration is treated as 'income from other sources' in the recipient's hands. Together, these provisions mean that a share transfer at nominal consideration (e.g., a founder transferring shares to another founder at face value) can trigger a deemed gain for the seller and a deemed income for the buyer, both calculated by reference to FMV. Proper valuation and transaction planning — timing, instrument structure, and valuation benchmarking — are essential.

Yes — a foreign national can be both a shareholder and a director of an Indian private limited company. As a shareholder, their investment constitutes FDI under FEMA — FEMA compliance (FC-GPR, FDI policy sector compliance, pricing guidelines) applies. As a director, they must obtain a Director Identification Number (DIN) from MCA — this requires a passport apostilled by the Indian Embassy in their country of residence. At least one director on the Board must be an Indian resident (physically present in India for not less than 182 days in the preceding calendar year under Section 149(3)). Nationals of countries sharing a land border with India (Pakistan, China, Bangladesh, Nepal, Bhutan, Myanmar, Afghanistan) require government route approval even for sectors that would otherwise allow automatic route FDI.

Form PAS-3 (Return of Allotment) must be filed with the Registrar of Companies through the MCA portal within 30 days of any allotment of shares. It must include: details of the allottees (name, address, PAN, number of shares allotted), the type of shares allotted, the price of allotment, the basis of allotment (preferential allotment, rights issue, private placement, etc.), and the Board resolution authorising the allotment. For preferential allotments under Section 62(1)(c), a separate Form MGT-14 must also be filed within 30 days of the special resolution authorising the allotment. Non-filing of PAS-3 leads to penalties and can create a discrepancy between the cap table and MCA records that creates diligence problems in future rounds.

A shareholders' agreement (SHA) is a private contract between the company and its shareholders (or among shareholders) that supplements the AoA and records the rights, obligations, and protective mechanisms agreed between founders and investors. It is not mandatory under the Companies Act — the AoA alone would be sufficient as the governing document. In practice, VC investors universally require a SHA because it allows for terms more detailed and investor-specific than an AoA (which is a public document filed with MCA), and because SHA terms can be more flexibly enforced under contract law. The SHA and AoA must be consistent — any conflict between the two is a governance risk. In many structured rounds, the SHA and the AoA amendment are negotiated in parallel, and the SHA is expressly stated to prevail in any conflict.

Our fundraising advisory fees are structured as professional retainer fees — not as a percentage of funds raised. The engagement scope and fees depend on the stage of the company, the complexity of the round, the instruments involved, and the regulatory compliance work required. A pre-fundraise readiness engagement (cap table audit, IP review, diligence preparation) is a defined-scope project fee. Term sheet review is typically a fixed-fee engagement with a fast turnaround commitment. Post-investment regulatory filings (FC-GPR, PAS-3, MGT-14) are charged on a per-filing basis with transparent pricing. We provide a written fee proposal before any engagement begins — no surprise invoices. For UAE-based clients engaging both the India and UAE offices, we offer a combined engagement structure with a single billing point.

PNPC is a CA firm — we handle all financial advisory, valuation, regulatory filings (FC-GPR, FC-TRS, PAS-3, MGT-14), tax advisory, and Companies Act compliance work. For the drafting and negotiation of the Subscription Agreement, Shareholders' Agreement, and AoA amendments, you will require a qualified company law attorney (advocate) or a Company Secretary firm. We work alongside legal counsel and act as the CA anchor on the engagement — coordinating with your lawyers on the financial and regulatory dimensions of each document. In some straightforward rounds, CA firms with strong corporate law affiliates handle the documentation and the CA compliance work within a single engagement — we can facilitate introductions to legal counsel in our network where needed.

In the context of private company fundraising, a SEBI-registered Category I Merchant Banker plays a specific statutory role: issuing the valuation certificate under Rule 11UA of the Income Tax Rules 1962 for FEMA pricing-guideline compliance on foreign allotments and for defensibility under Section 50CA/56(2)(x) on share transfers, and in some cases certifying compliance with SEBI (Issue of Capital and Disclosure Requirements) Regulations for larger structured private placements. The merchant banker's valuation report is a statutory document — it carries the banker's SEBI registration liability and provides the best available protection against the Income Tax Department or RBI challenging the share issue price. Not every valuation report from any professional qualifies for every purpose — for FEMA pricing-guideline compliance and Rule 11UA computations, it specifically must be from a SEBI Category I Merchant Banker or a registered valuer as prescribed. PNPC coordinates this engagement with our network of registered merchant bankers.

ESOP holders with vested and unexercised options do not automatically receive shares in a new funding round — they hold rights to purchase shares at a pre-agreed exercise price when they choose to exercise (subject to their vesting schedule). However, the new funding round typically dilutes the total shareholding — the ESOP pool percentage is adjusted accordingly. If the new round is a down round, the exercise price of existing ESOP grants may now be significantly above the current FMV — making those options 'underwater'. Anti-dilution provisions in ESOP schemes may provide for exercise price adjustment in certain circumstances. ESOP holders with fully vested options who have not yet exercised face a perquisite tax event only when they actually exercise — at that point, the difference between the FMV on exercise date and the exercise price is taxable as salary perquisite under Section 17(2).

Under FEMA and RBI Master Directions, Foreign Direct Investment (FDI) is defined as investment in equity instruments of an Indian company by a non-resident entity or person. Foreign Portfolio Investment (FPI) refers to investment in listed securities of Indian companies by registered FPIs under the SEBI FPI Regulations. VC investment into a private (unlisted) Indian company is almost always FDI — not FPI — regardless of whether the investor is a venture capital fund. The investor must comply with FDI policy sector caps, pricing guidelines, and FC-GPR reporting. Exception: if the investing entity is a SEBI-registered FPI and the investee company is listed, the investment is FPI. Most startups are unlisted — their foreign investor rounds are FDI and must comply with the FDI framework.

A bridge round is a small, short-term funding raise designed to 'bridge' the company to a larger upcoming round — usually structured as a convertible instrument that converts into equity at the price of the next round, often at a discount of 15–25% to reward bridge investors for their risk and timing. Common structures: Compulsorily Convertible Debentures (CCDs) with a conversion trigger at the next equity round, or CCPS with a conversion price set at the lower of a valuation cap or a discount to the next round price. Bridge rounds are typically raised from existing investors or close associates of the company — the process is faster than a full round. Key risks: if the conversion discount is too steep, it can create friction with the incoming lead investor who must accept significant dilution from bridge convertibles.

UAE-based founders raising capital for an Indian company face a specific cross-border complexity: the investment from UAE constitutes FDI under FEMA; any management fees, royalties, or intercompany payments between the UAE entity and the Indian company are subject to transfer pricing rules and withholding taxes; and the founders' own tax residency status (UAE resident or Indian resident) affects how their India-sourced income is taxed under the India-UAE DTAA. PNPC's Dubai office works alongside our Chennai/Bangalore/Hyderabad offices to provide integrated advisory — FEMA compliance, India-UAE DTAA planning, UAE entity structuring if needed, and coordination of Indian regulatory filings. You deal with one firm across both jurisdictions.

A preferred return (or hurdle rate) is most common in private equity structures — it is a minimum return threshold (e.g., 8% IRR) that investors must receive before the general partner or management team shares in the profits. It is distinct from a liquidation preference: a liquidation preference gives the investor priority in a liquidity event (sale or winding up) up to a multiple of invested capital, while a preferred return accrues over time as a return metric. In Indian VC deals structured through AIFs, both concepts may appear — the AIF's fund documentation may specify a preferred return for LPs, while the investment agreement with the company specifies a liquidation preference for the CCPS held by the AIF. PNPC reviews both layers when advising on VC terms.

Post-investment compliance checklist: (1) FC-GPR on RBI FIRMS portal within 30 days of allotment (foreign investors only); (2) PAS-3 with Registrar of Companies within 30 days of allotment (all investors); (3) MGT-14 with Registrar of Companies within 30 days of special resolution for preferential allotment (if applicable); (4) Share certificates issued to all new investors within 60 days of allotment; (5) Updated Register of Members; (6) Updated cap table reconciled with all filings; (7) If AoA was amended: certified copy of new AoA available on MCA within 30 days of special resolution; (8) Form ADT-1 if a new auditor was appointed or reappointed as part of the round; (9) Annual Performance Report (APR) for FEMA purposes by 31 December each year for existing foreign investors. PNPC tracks all these and initiates filings before deadlines.

No — an LLP (Limited Liability Partnership) cannot receive equity investment from venture capital funds or most angel investors. Under FEMA, FDI into LLPs is permitted only in sectors where 100% FDI is allowed under the automatic route and the LLP has no performance-linked conditions — which excludes most technology and consumer sectors where VC operates. More fundamentally, VCs invest by acquiring equity shares or CCPS — instruments that do not exist in an LLP structure (LLPs have 'capital contributions' and 'profit sharing', not shares). If you have an LLP and want to raise VC funding, conversion to a Private Limited Company under Section 366 of the Companies Act is the first step. PNPC handles LLP-to-Pvt Ltd conversions.

The Annual Performance Report (APR) is an annual reporting obligation under FEMA for Indian companies that have received foreign direct investment. It must be filed on the RBI FIRMS portal by 31 December each year, covering the financial year ending 31 March of the same calendar year. It reports the financial performance of the Indian company (turnover, profit/loss, net worth, dividends paid), the current shareholding pattern including all foreign investors, and the status of any conditions attached to the FDI. Failure to file APR triggers RBI show-cause notices and can result in compounding proceedings. Many companies that successfully file FC-GPR at the time of investment then miss APR in subsequent years — PNPC adds APR to your annual compliance calendar from the date of your first FC-GPR filing.

Primary funding is when new shares are issued by the company to an investor — the money goes into the company's bank account, increasing the company's resources. This is how most early-stage VC rounds work. Secondary funding is when existing shareholders (founders, early investors, employees who have exercised ESOPs) sell their shares to a new or existing investor — the money goes to the seller, not the company. Secondary transactions provide liquidity to early shareholders without the company issuing new shares or incurring new dilution at the company level. A round can have both primary and secondary components — the investor puts money into the company (primary) and simultaneously buys some existing founder shares (secondary). From a regulatory perspective, primary requires PAS-3 and (if foreign) FC-GPR; secondary requires SH-4 (share transfer form) and (if cross-border) FC-TRS.

The number of new shares to allot is determined as follows: Post-money valuation = Pre-money valuation + Investment amount. The investor's post-investment ownership percentage = Investment amount / Post-money valuation. Number of new shares to allot = (Investor's ownership % × Total post-allotment shares) — where total post-allotment shares = existing shares + new shares. Solving: new shares = (Investment amount / Pre-money valuation) × existing fully-diluted shares. Issue price per share = Investment amount / number of new shares. Example: 1,00,000 existing shares, pre-money valuation ₹10Cr, investment ₹2.5Cr — investor gets 25,000 new shares at ₹1,000 per share, owns 20% post-money. This calculation must be done on a fully-diluted basis, including all ESOP pool shares reserved.