Deriving share prices from fully diluted counts
Price per share is calculated by dividing the pre-money valuation by the fully diluted number of shares outstanding before the round, which must include all options, warrants and any pool top-up agreed as part of the round. Getting the share count wrong, for example by leaving out the option pool, produces an incorrect price per share and misallocates ownership between founders and the new investor.
Example share price with a pool top up
A company has 7,500,000 existing fully diluted shares. The investor requires a 10% post-money pool, and the round raises 3,000,000 at an agreed 9,000,000 pre-money valuation. First, the pool top-up must be solved so that the pool equals 10% of the post-money fully diluted share count, which typically requires adding the new pool shares to the pre-money share count before calculating a post-money valuation.
| Step | Calculation | Result |
|---|---|---|
| Existing fully diluted shares | given | 7,500,000 |
| Pool top-up added pre-money | solved to hit 10% post-money pool | 1,046,000 (approx.) |
| Adjusted pre-money fully diluted shares | 7,500,000 + 1,046,000 | 8,546,000 (approx.) |
| Price per share | 9,000,000 / 8,546,000 | 1.053 (approx.) |
| New investor shares | 3,000,000 / 1.053 | 2,849,000 (approx.) |
Pool top-up calculations that target a fixed post-money percentage require solving an equation rather than a single division step, since the pool itself affects the total share count used to size it. Cap table software or a spreadsheet model is the practical way to get this exact.
Share price impact on strike levels and rounds
- It often sets the minimum strike price for options granted shortly after the round, to avoid setting options below fair market value.
- It is the reference point for calculating whether a future round is an up round or a down round.
- It determines exactly how many shares each investor receives, which is the number that actually appears on the cap table.
- Errors in the fully diluted share count used to calculate it can materially shift ownership between founders, the pool and the investor.
Questions on solving for price per share
- Is price per share the same as fair market value?
- They can align closely at the time of a priced round, but fair market value may be reassessed separately over time, particularly if no new round has happened recently.
- Why is calculating price per share with a pool top-up more complex?
- Because the pool size is usually defined as a percentage of the post-money total, and the pool itself is part of that total, so the equation must be solved rather than divided in one step.
- Does price per share differ between share classes?
- New investors in a round typically pay one agreed price for their share class, but different classes issued at different times, such as earlier preferred rounds or common shares, will usually have different historical prices per share.
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.