dilution and price per share
hi i invested in a startup a year ago, when i initially invested in the startup it was around $5 per share, the company is finally made some progress and is trying to get paid customers but needs more marketing costs. they will be issuing around 6% more shares but also will be reducing per share value to half $2.5. as an initial investor im quite disappointed that im already taking a loss, is there anything i can do ?
- 2 Replies
Hi Seth,
In terms of “if there is anything you can do” – the likely answer is no. If you were a major investor early on and had substantial voting power or a direct line of communication with the founder, maybe. But especially when investing more passively on Reg CF, Reg A platforms (or through Reg D syndicate), you’re a bit at the mercy of the founder, the company, and the lead/largest investors (if any).
Down rounds and dilution are never easy.
However, it sure beats the alternative – i.e. if the company were to go out of business and your investment went to zero!
So sometimes it’s best to remain positive, continue supporting the company and founder, and hope that this new capital can help them to correct course and get back on a path towards a successful exit.
Also, I doubt this is the case here, but it is possible that the company did a share split. We’ve seen quite a few crowdfunded companies do share splits before going public.
So, for example – if they did a 2-for-1 split, the new “$2.50/share” price might actually be equivalent for your own holdings, since in that situation you would now own twice as many shares.
I haven’t seen this much while a company is still private, but it does happen and is worth exploring or asking.
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