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Startup capitalization - creation and allocation of shares

    • 1 posts
    January 26, 2014 6:05 PM EST

    This article http://allthingsstartup.blogspot.com/2008/06/startup-capitalization.html about startup capitalization says:

     

    "You...incorporate...with a total of 100 Million Common (Authorized) Shares at a par value of $0.001...KPCB [the VC] decides to advance a term sheet to buy 10 Million of Series A preferred stock at a “pre-money value of $30,000,000 or $0.50 per share. You would float 10 Million Preferred shares at par value of $1 for KPCB to bring the “post money valuation” to $40,000,000. At this point, the VC firm has a 9.1% stake in your company (10M shares/110 M)."


    I assumed the 10,000,000 shares would be allocated out of the pool of 100,000,000 shares.  But new shares appear to have been created - they expanded the share pool to 110,000,000 when those shares were allocated.


    What are the mechanics of this?


    This post was edited by Emilio at January 26, 2014 6:23 PM EST