How do you calculate Series A price per share?

Takeaway: The price per share in a Series A financing is calculated by dividing the agreed-upon "pre-money" valuation by the company's fully-diluted capitalization before the new investment, a simple but critical calculation that determines how much of the company you are selling.

Once you and your lead investor have negotiated the key economic term of your Series A financing—the "pre-money" valuation—the next step is to translate that high-level valuation into a specific price per share. This price is critically important because it determines exactly how many shares of Series A Preferred Stock the investors will receive for their investment, and therefore, how much of the company you, the founders, are selling.

The calculation itself is straightforward, but it depends on a precise understanding of two key inputs: the pre-money valuation and the fully-diluted capitalization.

The Formula

The formula for the Series A price per share is:

Price per Share = Pre-Money Valuation / Pre-Financing Fully-Diluted Capitalization

Let's break down each component.

  • Pre-Money Valuation: This is the value of your company before the new investment from the Series A investors comes in. This is the primary negotiated term (e.g., "we are raising on a $10 million pre-money").

  • Pre-Financing Fully-Diluted Capitalization: This is the denominator, and getting it right is crucial. It represents every single potential share of the company that exists before the new Series A shares are issued. This includes:

    • All issued and outstanding shares of Common Stock (held by founders and early employees).

    • All shares reserved for the company's stock option pool (both granted and ungranted options).

    • All shares that would be issued if all outstanding convertible notes, SAFEs, and warrants were to convert into stock.

A Common Trap: The "Option Pool Shuffle"

It is critical to note that the standard venture capital term sheet requires that a new employee stock option pool be created as part of the financing, and that the size of this new pool is included in the pre-money capitalization number. This is often called the "option pool shuffle," and it is a key point of negotiation. By including the new option pool in the pre-money capitalization, its dilutive effect is borne entirely by the founders and existing stockholders, not by the new investors. This effectively lowers the true pre-money valuation for the founders.

Putting It All Together: An Example

  • Pre-Money Valuation: $10,000,000

  • Shares held by founders: 8,000,000

  • Shares in the existing option pool: 500,000

  • Shares created by a new option pool required by the financing: 1,500,000

  • Pre-Financing Fully-Diluted Capitalization: 8,000,000 + 500,000 + 1,500,000 = 10,000,000 shares

Price per Share = $10,000,000 / 10,000,000 shares = $1.00 per share

If your Series A investors are investing $5 million, they will purchase 5,000,000 shares of Series A Preferred Stock at this price. This simple calculation is the mathematical foundation of your entire financing round.

Disclaimer: This post is for general informational purposes only and does not constitute legal, tax, or financial advice. Reading or relying on this content does not create an attorney–client relationship. Every startup’s situation is unique, and you should consult qualified legal or tax professionals before making decisions that may affect your business.