equity, funding, investment, financingSuppose you own 10% of a company valued at 1M and then there’s a down round valuing the company at 250k, the round is 200k big.
How to calculate how much money do you have to put in this round if you want your equity to remain 10%?
How diluted are you, if you don’t put any money in?
Imagine for a moment that you’ve 10% of a company valued a $1M w/ 1M shares. It means you’ve 100k shares.
Come a round that adds $200k with the company valued at $250k. It means you’re going to increase the number of shares by 1M * 200k/250k = 800k. Total shares is thus 1.8M.
If you don’t put money in there, you still have your 100k shares, which is to say 5.56% of the company’s 1.8M shares.
To keep your 10% stake, you’d need to own 180k of the new 1.8M share pool. That means buying 80k of 800k new shares valued at $200k, i.e. your cost will be $20k.
If we assume the round is larger in that the new investors are buying $200k worth of stock regardless of what you do, you’ll need to match their contribution at that rate while keeping 10%. That means owning x extra shares such that 100k + x = (1.8M + x)/10. In other words 88.9k shares which valued as above means $22.2k give or take a rounding error.
All content is licensed under CC BY-SA 3.0.