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Top 10 Finance Terms from Shark Tank to Raise Capital Effectively

Top 10 Finance Terms terms from Shark Tank to Raise Capital Effectively
rohit
Rohit10 April 2024

What are your monthly sales and how much gross margin do you earn? What is your company's valuation? How much cash are you burning every month? — You must be familiar with these questions if you've been binging on Shark Tank India over the past couple of months. Sharks essentially ask these questions to assess a startup's financial performance and profit potential.

Therefore, these questions are pertinent for entrepreneurs, especially if you want to seek investment in the future or expand your business. 

Understanding these financial principles helps you make better decisions and negotiate with investors to maximise valuation and minimise equity dilution. Let's see the most popular terms used in Shark Tank and how they apply to your business. 

Top 10 Shark Tank terms you should know to maximize valuation while minimizing equity dilution

Top 10 Shark Tank terms you should know to maximize valuation while minimizing equity dilution

1. Valuation

Valuation is the true value or economic worth of your startup. Sharks invest in a startup in exchange for a certain percentage of ownership or equity. Valuation helps determine the price per share of the company and the worth of the investor’s ownership of the company.

For example, if a shark has 10% ownership in a startup whose valuation is Rs. 1 crore, they get shares worth Rs. 10,00,000.

For early-age startups that do not have sufficient financial data to show their performance, valuation is calculated via multiple means like comparing the valuation of their competitors, the company's ability to prove its potential customer base, the strength of the founding team and more such parameters. 

Investors consider various factors such as market size, revenue and financial performance, intellectual property, founder’s expertise and unique selling proposition to calculate a startup's valuation.

Valuation is of two types: pre-money and post-money valuation. The pre-money valuation is the value of your company before seeking investment. Once you seek outside investment, the valuation increases and is called post-money valuation.

Post-money valuation

For example, if your pre-money valuation is Rs. 1 crore and you receive an external investment of Rs. 70 lakhs, the post-money valuation will be Rs. 1,70,00,000.

Learn more: How to Finance Your Startup

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