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Your investors have many investment options. Your start up company, by its very nature is high risk, after all, it is a start up company. Therefore, it must offer investors a very high potential return on their investment (ROI). If your price per share and your company's financial projections indicate a moderate ROI, the investor would be much wiser to invest in something far less risky. Now, you might think "I'm the one putting everything I have into this company; all the investor is putting in is some cash; they don't deserve that much of a return." That is a fine attitude to have only if you don't want investors .
The price per share will be the subject of major discussion between you and your lead investor, but right now all you are doing is planning your company. So, you need to enter a price per share that is at least realistic; that is, it is in the ballpark of a price per share that a sane investor might agree to. Let's talk about how to find that price. Let's say you have decided to need to raise $500,000 (as determined by careful analysis of your cash flow statement) during Series A. In order to calculate a reasonable price per share, we must make some assumptions about your assumptions, e.g., let's assume
Let's try various prices per share and see what kinds of IRRs the investors would achieve:
Notice that contrary to what many novice entrepreneurs think, investors are not motivated by control! They might drive you toward a 44% ownership stake for their $500,000 investment, but it is based solely on them achieving their desired returns, not on control. They do not want to own your company! They want a great return on their investment.
Also see the blog post, Planning Investment Round Pricing for Startups
Related Questions:
How do I create an investment round?
How do I change the price per share for an investment round?