VC - Calculating Ownership Quicklyby @itsabhinaya PATRON | 225 words | 🐣 | 180💌
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When talking about terms with companies, it's important to keep ownership and dilution in mind on both sides.
I can use a calculator to figure out what those percentages might be but it's better to be quick at it.
Focusing on ownership, I am most likely calculating it by using the amount being raised and what post-money valuation might be.
For example, if a company is raising $1M at $4M post-money valuation then they are giving up 25% ($1M/$4M) of their company at that round.
Not including option pool, conversions into calculations at this time.
Then, if we are investing $250K of that round, we own 6.25% ($250K/$4M) of the company.
So, how can I do $250K/$4M calculation faster without using a calendar?
This is how I am doing it-
25/4 = 6 something because 4×6=24
Then there is 1 left. 1/4 = .25
So it's 6.25
That was an easy one. Let's do another one.
Putting in $300K into a $5M post-money valuation.
30/5 = 6. So 6%
Putting in $350K into a $6.5M post-money valuation
35/6.5 = 5 something because 6 × 5 = 30 but not more than 5.83 because 5/6. I don't really know how to calculate the exact decimal but that's good enough for that conversation.
One last one-
Putting in $400K into a $7.5M post-money valuation
40/7.5 = 7×6= 42 so less than 6% and probably closer to 5.5%