FIN.10:5.3 - Equity finance prices a transferred interest

In another constructed offer, the existing equity is worth 200 immediately before financing. A new investor supplies 100 net, with no fees or special rights, and the cash is added to the business without any other value change. Equal ordinary interests imply post-money equity value 300. Issuing one third of that equity to the investor leaves the old owners with two thirds worth 200. If the investor instead requires 40% on these same valuation grounds, the old owners retain 60% of 300, or 180: a transfer of 20 relative to their starting interest.

This is a valuation comparison of the offer, not a claim that an investor must accept one third. A changed business value, funding urgency, preference or control right changes the comparison. If the cash funds an investment with its own gain, first include that attainable gain consistently; do not credit it wholly to old owners and also use it to justify the new investor’s percentage.