3 ms·

So in this scenario, does it also mean that the shares are now worth less too? As in they are now worth $3/share ($10M/3,000,000) whereas before they were worth

• ChuckMcM 14y ago
  Edit: yes the value goes down of the shares, but the calculation 'post money' is $10M + $10M / 3m shares so 6.66 $/share.
• deleted 14y ago
  [deleted]
• jfno67 14y ago
  After the new $10M in cash it is $20M/3,000,000, so they are worth $6.66/share
• andrewcooke 14y ago
  if you re-did the maths with the same guy buying 1,000,000 shares at $10 a share then they'd still end up with a controlling share in the business (and the business would indeed be worth $20M since it was worth $10M before and now has an extra $10M in cash, meaning that shares would still be worth $10 each). so i'm not sure why the original example needed to place an odd value on the newly issued shares. as far as i can tell, it just muddies things. i wrote this on rights issues, which is kind-of related (works through a similar kind of argument, except this time framed so people keep the same fractional shares) - http://acooke.org/cute/EnersisEnd0.html http://acooke.org/cute/EnersisEnd0.html [edit: just fixed url] (i'm no expert, i was just interested in that particular case in the chilean press recently). in short: you don't need to screw anyone over. it can just be that the person putting most money in ends up with most of the ownership. the two key points are: (1) people need to agree on the company's value before; (2) the company gets the cash (and so its value goes up). of course, that cash won't sit in the bank - but it's the company's responsibility (and the investor's hope) that it is spent in a way that increases the value of the company.