Price per share
Posted on 07. Jul, 2008 by squareroots in Graphical Examples
The key to understanding the price per share calculation is that the number of shares in the company is increased (shares are added) with each round of financing. When the pre-money valuation is set, divide it by the total number of shares (prior to financing) to calculate the price per share.
To the right, we have an example of this price per share calculation. There are 3,000,000 founding shares. With a pre-money valuation of $3M, this results in a $1.00/share price. The key aspect is that new shares are then created with this price per share ($1.00/share). If the investors put in $2M of new money, then 2,000,000 new shares are created.
Another method exists to calculate the price per share if an option pool is created in an alternate method. Please refer to the post on Option Pool Creation, which shows both methods used to evaluate the price per share.
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