By setting the same price per share as your round, new investors get the same deal.
When topping up a previous funding round via Instant Investment, many founders choose to give their new investors the same deal as the previous investors in their last funding round. This can be done by maintaining the same price per share as the one in your funding round. This ensures the dilution is consistent throughout the Instant Investments as it was within the Funding Round.
However, some founders may opt for a higher price per share to reflect a higher valuation if they raise Instant Investment sometime after their funding round.
Let's take a look at an example:
Suppose your Cap Table looks like this after your Pre-Seed Round, in which your price per share was £9 at a £1 million valuation. Here, your investors within the Funding Round were issued 5,850 shares, or 5% equity:
To give your new investors the same Price Per Share as your existing shareholders from your previous funding round (£9), you will need to offer them a higher pre-money valuation. This is because you need to factor in the higher Fully Diluted Total (the total number of shares and options on the cap table). This is illustrated by the following calculation:
Pre-money Valuation= Total number of shares and options * Price per share.
Pre-money Valuation = 116,961*£9 =£1,052,650
Pre-money Valuation = £1,052,650
Therefore the Price per share remains the same and the Cap Table now looks like this:
Once a second investment comes in, to maintain the same Share Price, you will need to use the above calculation to increase the Pre-Money Valuation each time.
Conversely, if you wanted to give away less equity and reduce dilution effects you can increase the Price per Share of the Instant Investment, to reflect a higher pre-money valuation.
Please be wary that following each Instant Investment, each investor will be diluted further, and that the first Investor’s Investment Agreement will not encapsulate the subsequent investments made within the Instant Investment Group. Here is what the first of two instant investment agreements will show:
It is only the Instant Investment Agreement that was completed last that will encapsulate all of the investments and reflect the final Cap Table, provided that all Investments have had their share certificates issued and are marked as ‘Completed’. Here is an example of what an agreement will show if an instant investment is completed before:
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