Summary

Chapter 22: Getting Financed - Page 22.16

Stock Ownership is Simple Math

You can study the Investment Offering table to see that sophisticated-sounding concepts like stock ownership, shares, value per share, and valuation are based on relatively simple math. You can calculate valuation by multiplying the price of a single share of stock by the number of shares. You calculate percent of ownership by dividing the number of shares owned by the total number of shares. You can easily decrease the price of a share by increasing the number of shares available.

Therefore, if you tell an investor you’re offering 10% of the company for $1 million, for example, you are saying your company is worth $10 million.

Summary

Most businesses are financed by home equity or savings as they start. Only a few can attract outside investment. Venture capital deals are extremely rare. Borrowing will always depend on collateral and guarantees, not on business plans or ideas. And yes, it seems obvious, but still, with emphasis: investors need to make money.

Appendices

These links take you to additional business planning resources and information about this site.

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