Calculating paper value from price per share
To estimate the paper value of an equity stake, multiply the number of shares held by the most recent price per share, usually the price set in the last funding round. If an employee holds 20,000 shares and the last round priced shares at 4.00 each, the paper value of the stake is 80,000.
This is a snapshot based on the last priced round. Between rounds, the real value may have moved up or down, and there is usually no way to trade shares to realise this value directly. See fair market value for the mechanics.
Why common shares can be worth less on paper
Investors typically hold preferred shares with a liquidation preference, meaning they are paid back a set multiple of their investment, often 1x, before common shareholders, including founders and employees, receive anything. On a smaller exit, the preference stack can absorb most or all of the proceeds, leaving common shareholders with much less than a simple share count times price per share calculation would suggest, a risk that applies just as much to vested stock options as to shares outright.
| Exit value | Preferred payout (1x on 5,000,000 invested) | Remaining for common shares |
|---|---|---|
| 20,000,000 | 5,000,000 | 15,000,000 |
| 6,000,000 | 5,000,000 | 1,000,000 |
| 4,000,000 | 4,000,000 (all proceeds) | 0 |
Sanity checks before trusting a share value
- Always check whether outstanding options are for common or preferred style shares, since terms differ.
- Ask whether there is a liquidation preference stack and how large it is relative to likely exit values.
- Remember that unvested shares or options are not yours to value yet; only count vested holdings as realistic.
- Treat any valuation of private equity as an estimate, not a guaranteed cash figure.
Questions on valuing an individual stake
- Can I sell my startup shares to realise this value?
- Usually not easily. Private company shares are illiquid, and transfers often require company or board consent, so realising value typically happens at a funding round secondary or an exit.
- Does a higher valuation always mean my stake is worth more in cash terms?
- Not necessarily, particularly if the round comes with new preference terms that reduce what common shareholders receive on a smaller future exit.
- How do options factor into equity valuation?
- Subtract the total exercise cost from the share value to estimate net value, since you must pay the strike price to convert options into shares.
General information for founders, not legal or tax advice. Thresholds and rates change, so confirm the current position with an adviser in the relevant country before granting.