accounting question for VC
Just wondering how to book the transaction when a startup raised a huge amount of money.
For example, if there is a VC spend 1 million to acquire 10% ownership of a startup. Let's just assume before the investment the startup founder is the sole owner, who just put in 100k to start this business. Now it worth 10 million. That's the Equity amount. What about the Asset part of the book. The cash just increase by 1 million. How to book the rest of 9 million. Obviously, the owner won't match up by putting in 8.9 million cash, right? What would make up that asset increase then?
You're confusing the mark to market that the pre-existing equity owner may make in his/her accounts with the value of contributed equity in the books of the company. The latter should not get revalued.
Instead, the deal would just be: DR Cash $1m CR Equity $1m
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