NISM Series XIX-A case set 3

Birch Fund invests ₹10 crore in newly issued ordinary shares of a company valued at ₹40 crore immediately before that investment. All shares have identical economic rights, and there are no options or convertibles. Later, a second investor puts ₹25 crore into new ordinary shares when the company’s pre-money equity value is ₹75 crore. Birch does not invest in that later round. No shares are sold by existing holders in either round, and no distribution occurs. Assume both negotiated pre-money values are accepted for this exercise. The distributor wants to explain the difference between ownership dilution and a change in the marked value of Birch’s holding.

Pre-money values are hypothetical negotiated equity values.

No option-pool change, special right or transaction cost applies.