How do regular shares work?

I just received a term sheet for a regular share deal.

I don’t know about you, but I have a hard time understanding legal documents.

My default solution: build a spreadsheet and see how stuff works.



When I incorporated, the startup issued 1,000 shares. I own 1,000 / 1,000 = 100% of the shares.

According to the term sheet the investor wants to invest $200k at a $800k pre-money valuation. That means he wants to pay $800k / 1,000 = $800 per share. That means the startup will issue another $200k / $800 = 250 shares. I will own 1,000 / 1,250 = 80% of the shares.

Why issue new shares? If I would sell part of my 1,000 shares, the investor pays me. The investment ends up in my pocket. If the startup issues (sells) new shares, the investor pays the startup. The investment ends up in the startup’s pocket.

Given my cash-flow planning, I expect that I need to raise another round. Assume $1.5m at $2m pre-money. That means $2m / 1,250 = $1.6k per share. That means the startup will issue another $1.5m / $1.6k = 938 shares. I will own 1,000 / 2,188 = 46% of the shares.

Assume the startup is sold for $10m. This means the buyer wants to pay $10m / 2,188 = $4.6k per share. That means I will have an exit of 1,000 * $4.6k = $4.6m. I will own no more shares.

Of course, the pre-money valuation for the Series A is highly uncertain. So I chart my exit, given a range of pre-money valuations and a $10m exit value:


The exit value is also highly uncertain. My exit, given a $2m pre-money valuation and a range of exit values:


I can go nuts and even combine the range for the pre-money valuation and the exit value:


OK, now I get how this term sheet works.

Do you want to know how your term sheet works? Send me an email.


Thanks to Hans Westerhof and Chretien Herben.

Joachim Blazer is founder at Venture Value. Contact him at

Venture Value does startup valuations for founders who want to raise money with an investor.