Overview of Equity

An easy formula to remember:

<aside> 📈 Company Value = Share Price * Number of Shares

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If you ever know 2 out of the 3 numbers above, you can use arithmetic to calculate the 3rd.

It doesn’t matter if this is a tiny startup or a $1T public company, the formula always holds up. For public companies, you may see the term “market capitalization” used interchangeably with company value or valuation.

Setting Up a New Business

When you create a new startup on Stripe Atlas, it will automatically create a structure like this:

Number of Shares: 10,000,000

Share Price: $0.00001 / share

You can use the formula above to calculate a company value of $100. (10M * $0.0001 / share)

As a founder, you can pay $85 to buy 8.5M shares while leaving 1.5M shares for the option pool.

Raising Capital

What happens when you add investors? Instead of the investors’ buying anyone’s shares, here’s what happens instead:

• Brand new shares are created (this is called “dilution”)
• These shares are added to the total number of shares in the company and your investors pay the company a higher “preferred share price”