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It matters if the pre-money valuation at which the new shares are issued is inaccurate. You own 10% of a company that was valued in the last round of funding a
by alex_smart 3y ago
It matters if the pre-money valuation at which the new shares are issued is inaccurate.
You own 10% of a company that was valued in the last round of funding at 10 million dollars. You have put in significant amount of work since and company has raised a lot more revenue. The fair market value is now at a 100 million dollars, but the existing shareholders put in another 90 million dollars at the same pre-money valuation as last round, diluting every existing share down by 90%. Congrats you now own only 1% of the company and just got robbed of over 8 million dollars. (Fair value of your stock went from 10% of 100 million = 10 million to 1% of 190 million = 1.9 million).
- simonbarker87 3y agoI suppose it depends on how the ownership stake is defined for it to be “getting screwed” or not? The equity I’ve had has always been X shares, Y price, equating to A% of the current issued shares. In both companies this has been over 10%. It’s then always been explained that to maintain my %, shares would need to be issued to me as part of the follow on rounds, but even if they weren’t the value of my stake (which is all that matters in my opinion) still goes up (assuming not a down round). I’ve never really understood the focus on percentages, they aren’t the value.