How many shares do I need to issue if an advisor wants 5%

[danesbury]

Hi

I have a startup, there are four founders.

Founder A has 300 shares
Founder B has 300 shares
Founder C has 300 shares
Founder D has 100 shares

There are 1,000 shares in total.

An advisor wants to join but he wants "5%' of the company.

To do this I have to issue new shares in addition to the 1,000 and all founders equity percentage will be diluted by "number of founder shares/total new shares"

How do I work out how many shares to give to him?

Regards

L

 

[Deleted member 4993]

Hi

I have a startup, there are four founders.

Founder A has 300 shares
Founder B has 300 shares
Founder C has 300 shares
Founder D has 100 shares

There are 1,000 shares in total.

An advisor wants to join but he wants "5%' of the company.

To do this I have to issue new shares in addition to the 1,000 and all founders equity percentage will be diluted by "number of founder shares/total new shares"

How do I work out how many shares to give to him?

Regards

L

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[HallsofIvy]

Suppose you issue N new shares. How many total shares are the now? What is 5% of those? Since the original 1000 shares have already been given out, that 5% must be equal to N. Set that equal to N and solve for N.

 

[stapel]

I have a startup, there are four founders.

Founder A has 300 shares
Founder B has 300 shares
Founder C has 300 shares
Founder D has 100 shares

There are 1,000 shares in total.

An advisor wants to join but he wants "5%' of the company.

To do this I have to issue new shares in addition to the 1,000 and all founders equity percentage will be diluted by "number of founder shares/total new shares"

How do I work out how many shares to give to him?

What rules and contract terms did they give you for this exercise? Please be specific. Thank you!

 

[HallsofIvy]

IF the process was "dilution" of existing share distribution,
then the result would be:
0285
0285
0285
0095
0050
------
1000

Agree, Halls?

The original problem said "I have to issue new shares in addition to the 1,000" but IF we want to redistribute the 1000 shares, I would say we should give the advisor 0.05(1000)= 50 shares and distribute 3/10 of the 1000- 50= 950 remaining shares to each of the first three investors, and 1/10 to the fourth. 3/10 of 950= 285 and 1/10 of 950= 95. Yes, I agree.

 

[danesbury]

Easier clarification

I think the question I posed below probably confused things.

If I make it simpler and forget about dilution to existing shareholders.

I have 1,000 shares.(S)
I need to issue (N) new shares so that (S + N) * 5% = advisor shareholding
How do I find out N?

I have a startup, there are four founders.

Founder A has 300 shares
Founder B has 300 shares
Founder C has 300 shares
Founder D has 100 shares

There are 1,000 shares in total.

An advisor wants to join but he wants "5%' of the company.

To do this I have to issue new shares in addition to the 1,000 and all founders equity percentage will be diluted by "number of founder shares/total new shares"

How do I work out how many shares to give to him?

 

[danesbury]

Another example

Suppose you issue N new shares. How many total shares are the now? What is 5% of those? Since the original 1000 shares have already been given out, that 5% must be equal to N. Set that equal to N and solve for N.

In a simpler vein, if an advisor comes along and agrees to work for free and wants say 20% ownership when there are already 100,000 shares, the company simply issues 25,000 shares to the advisor, thus giving him 25,000/125,000 shares, or 20%.

Question: How do you work out you need 25,000 shares?

 

[stapel]

In a simpler vein, if an advisor comes along and agrees to work for free and wants say 20% ownership when there are already 100,000 shares, the company simply issues 25,000 shares to the advisor, thus giving him 25,000/125,000 shares, or 20%.

Question: How do you work out you need 25,000 shares?

To learn how to set up and solve "percent of" word problems, try here.

Once you have studied the lesson at the link, please attempt to solve the following:

"If 100 is eighty percent of an amount 'x', what is the amount 'x'?"

 

[HallsofIvy]

I think the question I posed below probably confused things.

If I make it simpler and forget about dilution to existing shareholders.

I have 1,000 shares.(S)
I need to issue (N) new shares so that (S + N) * 5% = advisor shareholding
How do I find out N?

This is exactly what I said before. The new shares are the ones you are going to give to the advisor so your equation is (1000+ N)(0.05)= N. That is the same as 50+ 0.05N= N or 50= 0.95N. Solve that for N.