Your fund owns 12% of Rangvik Apparel and has pro rata plus a super pro rata right up to 20% of any round. The Series B raises Rs 100 crore at Rs 400 crore pre-money. What does it cost to hold 12%, what does the full super pro rata cost, and what ownership do you end with in each case?

Rs 12 crore holds the fund at 12%, and the full super pro rata of Rs 20 crore lifts it to 13.6%. The round takes 20% of a Rs 500 crore post-money, so doing nothing dilutes 12% to 9.6%. Rs 12 crore adds 2.4 points; Rs 20 crore adds 4.0. The extra Rs 8 crore buys 1.6 points at the Series B price, Rs 5 crore a point, and leaves the new lead Rs 80 crore of the round.

If four friends share a pizza and a fifth arrives with an extra pizza's worth of money, everyone's slice of the bigger whole shrinks unless they chip in too. New shares shrink every existing stake by the same proportion: Rs 400 crore pre-money and Rs 100 crore new makes Rs 500 crore post-money, so existing holders keep 400/500, or 80%, of their percentage. The fund's 12% becomes 9.6% if it sits out.

Pro rataThe right to buy the share of a new round equal to your current ownership, which keeps your percentage unchanged. is 12% of the Rs 100 crore round, Rs 12 crore. Those shares are 12/500 of the company, 2.4%, which takes the fund back to 12.0%. The full super pro rata is 20% of the round, Rs 20 crore, which buys 4.0% and takes the fund to 13.6%. The extra Rs 8 crore buys 1.6 points, Rs 5 crore a point, the same price as every other Series B share.

The question is not whether Rs 5 crore a point is cheap; it is the Series B price, set by a new lead who has done its own work. The decision is whether Rangvik deserves Rs 8 crore more of the fund's limited reserves than its pro rata, ahead of other portfolio companies that may need follow-on money. If Rangvik is one of the fund's two or three best companies, concentrating there is how seed and Series A funds make their returns. If not, the pro rata is enough. There is also a relationship cost: taking Rs 20 crore leaves the new lead Rs 80 crore instead of Rs 88 crore, and a lead that wanted the whole round may resist. The limit is that ownership is only worth what the exit is worth: 1.6 extra points of a Rs 2,000 crore exit is Rs 32 crore, before later dilution.