How do you calculate Series A price per share?

The simplest way to calculate the price per share of your Series A (or other financing) is as follows:

• Pre-Money Valuation / Fully Diluted Shares Pre-Money = Price Per Share

For example, if a company’s Series A investors ascribe a $10 million pre-money valuation to the company and the company has 11.5 million fully diluted shares pre-money, then the price per share (defined below) of the Series A financing would be as follows:

• $10,000,000 / 11,500,000 = $0.8696 per share

Some details on the terms in the price per share calculation:

• Pre-Money Valuation:

1. This number is typically a business negotiation between the company and the lead investor in the financing.
2. To calculate your post-money valuation, simply add the amount of the investment coming into the financing to your pre-money valuation.
1. For instance, in the example above, if a company takes in $2 million in the Series A, its post-money valuation would be: $10,000,000 + $2,000,000 = $12,000,000
2. Investors use the post-money valuation to calculate what percent of the company they will own after the financing (here, $2,000,000 / $12,000,000 = 16.66 percent)

• Fully Diluted Shares Pre-Money:

1. This number typically includes all:
1. Outstanding common stock;
2. Outstanding preferred stock, on an as-converted to common stock basis;
3. Outstanding warrants and other convertible securities (e.g., convertible notes) on an as exercised and/or as-converted to common stock basis;
4. Outstanding options; and
5. Options reserved in your option pool for future grant immediately prior to the financing (but see bullet “C” below).
2. Pay careful attention to the definition of this term in your term sheet, as there are cases where certain items are not included in the definition of fully diluted shares pre-money (which can benefit you by decreasing the denominator in the equation above and thereby increasing the price per share).
3. In particular, keep an eye on whether the following topics are in the definition of fully diluted shares pre-money:
1. Convertible instruments that are converting into the round (e.g., notes or SAFEs); and
2. Any increase to the option pool in connection with the financing.
    
   Pay close attention to whether there is a definition regarding any increase to the option pool in connection with the financing, as including the option pool increase in the fully diluted shares pre-money effectively decreases the company’s valuation (in addition to ensuring that only you, and not your investors, are diluted by the pool increase). This is because it would increase the denominator in the equation above, thereby decreasing the ultimate price per share and allowing the company’s investors to pay less for the same piece of a now slightly devalued company.

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