Comment by jakeinspace

Could someone who has a better grasp of corporate/securities law explain to me why the following is illegal/impossible: conspiring with an investor to get a small follow-up investment round with an inflated valuation, thus reducing the dilution of the $375k? For example, after the initial $500k from YC, you get your VC buddy to invest $50k at 0.1% for a total valuation of $50M, diluting the $375k to a mere 0.75% stake. This feels fraudulent to me, and there’s probably some language that YC uses to prevent this, but would is this otherwise illegal?