Begin with the ownership you already have
Before choosing a headline valuation, reconcile your shares and outstanding agreements. Record issued stock, options, warrants, SAFEs, convertible notes, and any promised securities compensation. Identify the share classes and rights behind each entry.
Your cap table and ownership records establish the starting point. This guide shows how to model the changes. All examples are fictional teaching calculations, with the assumptions stated. They are not valuations of a real company or suggested offering terms.
Reg CF requires an explanation of the valuation approach, capital structure, and dilution risks. Rule 201(m) sets those disclosures. A clear model helps your company supply that explanation to Issuance Express for Form C production and filing.
Connect the valuation to the share price
Suppose a company has 4 million common shares, all owned by its founders. It proposes a $4 million pre-money equity valuation. Here, pre-money means the agreed equity value before the new financing.
Assume there are no options, warrants, convertible securities, additional issuances, or different economic rights. The implied price is $4 million divided by 4 million shares, or $1 per share. A $1 million investment buys 1 million new shares.
| Holder | Shares after the raise | Ownership after the raise |
|---|---|---|
| Existing founders | 4,000,000 | 80% |
| New Reg CF investors | 1,000,000 | 20% |
| Total | 5,000,000 | 100% |
The post-money equity valuation is $5 million. The founders keep their 4 million shares, but those shares represent a smaller fraction of the total.
Use gross investment in this simplified issuance calculation. Cash offering expenses reduce usable capital without reversing the shares investors purchase. Any compensation paid in additional securities needs a separate cap table entry.
At the same $1 share price, raising $500,000 instead would issue 500,000 shares. New investors would own approximately 11.11% of the resulting 4.5 million shares. Model both your minimum and maximum rather than using one ownership percentage for every outcome.
Show what the next round changes
Continue the $1 million example. Later, the company sells another 1 million shares for $2 each, raising $2 million. Assume the same simplified rights and no other changes.
| Holder | Shares after the later round | Ownership after the later round |
|---|---|---|
| Founders | 4,000,000 | 66.67% |
| Earlier Reg CF investors | 1,000,000 | 16.67% |
| Later investors | 1,000,000 | 16.67% |
| Total | 6,000,000 | 100% |
Percentages are rounded. The earlier investors’ ownership falls from 20% to about 16.67%. Their number of shares stays the same.
The later share price is higher in this example, but it does not establish an immediately realizable return. Different preferences, voting rights, and transfer restrictions can affect what each class is worth. Ownership percentage alone cannot predict proceeds from a sale of the company.
Translate a SAFE into its possible share count
A SAFE generally provides contractual rights to future equity if specified events occur. It is not current stock, and conversion may never occur. The SEC’s SAFE bulletin explains why the actual triggers and terms matter.
For a conversion exercise, assume a $100,000 SAFE converts in a qualifying financing. The new investors pay $2 per share, and this particular contract provides a 20% discount. With no applicable cap or other adjustment, the conversion price is $1.60. Dividing $100,000 by $1.60 produces 62,500 shares.
Now assume that the same contract also provides a valuation cap and explicitly uses the lower of the cap price and discounted price. If the contract’s cap calculation produces $1.25 per share, the SAFE converts into 80,000 shares instead.
The cap price depends on the contract’s definition of capitalization. For example, a $5 million cap divided by a defined capitalization of 4 million shares produces $1.25. Your agreement may count options, other SAFEs, or reserved shares differently. Pre-money and post-money SAFE forms also allocate dilution differently. Do not apply this example to a different contract by changing only the cap figure.
After computing conversion shares, add the new financing shares and every other relevant issuance to determine ownership. The SAFE’s investment divided by its valuation cap is not a universal answer to eventual ownership.
Include accrued interest when a note requires it
A convertible note can convert principal and accrued interest if its terms provide for that treatment. Assume a $100,000 note accrues 8% simple annual interest for exactly one year, without payments. The balance is $108,000.
If the entire balance converts at an assumed $1.60 per share, it produces 67,500 shares. Converting principal alone would produce 62,500 shares. Those additional 5,000 shares matter to the ownership calculation.
Actual notes may use different accrual periods, compounding, repayment terms, or conversion treatment. Counsel should confirm the model against the executed agreement. Your accountant addresses the financial reporting treatment.
Build a worksheet your team can check
Create a separate column for the current cap table, minimum raise, maximum raise, and a possible later financing. For each scenario, record:
- The valuation basis, share price, and capitalization definition.
- Existing shares and each outstanding instrument’s conversion assumptions.
- New investor shares and any securities compensation.
- Option grants, pool changes, warrants, and participation rights that affect the result.
- Total shares and ownership percentages, with voting and economic rights described separately.
Retain the supporting agreements beside the model. Check that ownership totals 100% before rounding and that proceeds equal the shares sold multiplied by the applicable price.
Issuance Express coordinates the proposed terms, Form C, and offering-page explanation. Your company supplies accurate records and decisions, while counsel advises on the security documents and approvals. Bring the completed scenarios to that discussion, then connect them to your security choice and plan for the next raise.
Related reading
Sources and further reading
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General education from Issuance Express. This article is not legal, tax, or investment advice, an offer of securities, or a guarantee that an offering is eligible for the portal. Work with qualified advisers on the facts of your offering. SEC registration and FINRA membership do not imply approval of an offering or its merits.