Last week, Brick & Bolt, an Indian construction-tech startup, secured $2 million in its pre-Series B funding from the US-based venture capital firm Foundamental at a post-money valuation of $105 million.
In venture capital, the post-money valuation is the sum of the pre-money valuation and the capital raised:
Post-money valuation = Pre-money valuation + Capital raised
By this measure, Brick & Bolt’s pre-money valuation should be $103 million ($105M – $2M). However, there is a key nuance to consider.
Understanding Dilution
Before examining the discrepancy, it is important to first understand dilution.
In January 2023, Brick & Bolt raised $10 million from Accel at a post-money valuation of $36.5 million in its Series A round.
Dilution = Capital raised / Post-money valuation = 10M / 36.5M = 27.4%
This dilution exceeds the conventional range of 20–25% for Series A financing.
The likely explanation is that the round included secondary transactions (secondaries), where existing investors (such as angel investors) sold a portion of their shares to Accel.
Unlike primary transactions, where a company issues new shares to raise capital, secondary transactions involve the transfer of existing shares between investors. Thus, secondaries do not lead to dilution since the total number of shares in circulation remains unchanged.
Mix of Primary and Secondary Shares in Series A and Dilution
Most Series A and later-stage rounds include a combination of primary and secondary transactions.
Primary investments provide the company with fresh capital to fuel growth and expansion.
Secondary sales offer early investors and, in some cases, founders, an opportunity to liquidate their holdings before an IPO or acquisition.
In Brick & Bolt’s case, the actual dilution from its Series A round was likely lower than 27.4%, probably closer to 23%, assuming that $8.5 million came from the sale of primary shares and $1.5 million from secondary sales.
Implications for the Pre-Series B Round
The recent $2 million investment from Foundamental is part of a larger pre-Series B round—a bridge round designed to provide sufficient runway before a $25–30 million Series B raise.
Many startups establish a fixed post-money valuation across an entire round to provide clarity and predictability for incoming investors.
This locks in the investor’s stake at the outset, ensuring that their ownership percentage remains unchanged, regardless of the final amount raised.
For Foundamental, investing $2 million at a $105 million post-money valuation translates into an ownership stake of 1.95%:
2M / 105M = 1.95%
However, the pre-money valuation depends on the total amount the company ultimately raises in this round.
If Brick & Bolt raises $7 million, the effective pre-money valuation would be:
Pre-money valuation=105M − 7M = 98M
Assuming no secondary transactions, the dilution for existing shareholders would be:
7M / 105M = 6.67%
Conclusion
By structuring the round with a post-money valuation cap of $105 million, Foundamental’s stake remains 1.95%, regardless of whether Brick & Bolt raises $5 million, $7 million, or $10 million.
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