Posted: Wed Nov 28, 2007 8:09 am Post subject: Discussions regarding a possible re valuation of Tri-Coastal
Discussions regarding a possible re valuation of Tri-Coastal Oil and Gas Ltd. Pre-IPO shares are ongoing.
Released on: November 28, 2007, 12:40 am
Press Release Author: Talbot and Reese, Inc.
Press Release Summary: Talbot and Reese, Inc. spokesperson, Peter Hamilton, confirms that discussions between lead underwriter’s Talbot and Reese, Inc. and Tri-Coastal Oil and Gas Ltd. executives regarding a possible re-valuation of Tri-Coastal Oil and Gas Ltd. Pre-IPO shares are ongoing.
Press Release Body: The Pre-IPO offering price for Tri-Coastal Oil and Gas Ltd. was based on figures before this year’s dramatic 57% increase in crude oil prices.
“Tri-Coastal’s Pre-IPO offering has been well received within the investment community” said Talbot and Reese, Inc. spokesperson Peter Hamilton. He further stated that “Regarding possible future issues, we are considering increasing the share price to a more accurate valuation.” This is based on the offering being quickly subscribed to and the 57% increase in the price of oil since initial valuation of the Pre-IPO shares.
Mr. Hamilton further reports on the Venture Capital valuation process; “In general, all valuations in institutional venture capital are primarily driven by prevailing trends, typical stage-related capital needs, and cap table expectations of later stage investors."
The essence of a venture capital transaction is that the investor puts cash in the company in return for newly-issued shares in the company.
The state of affairs immediately prior to the transaction is referred to as “pre-money,” and immediately after the transaction “post-money.” The value of the whole company before the transaction, called the “pre-money valuation” (and similar to a market capitalization) is just the share price times the number of shares outstanding before the transaction.
The total amount invested is just the share price times the number of shares purchased, unlike when you buy publicly traded shares, however, the shares purchased in a venture capital investment are new shares, leading to a change in the number of shares outstanding.
And because the only immediate effect of the transaction on the value of the company is to increase the amount of cash it has, the valuation after the transaction is just increased by the amount of that cash, the portion of the company owned by the investors after the deal will just be the number of shares they purchased divided by the total shares outstanding:
So when an investor proposes an investment of $2 million at $3 million “pre” (short for pre-money valuation), this means that the investors will own 40% of the company after the transaction.
The key trick to remember is that share price is easier to calculate with pre-money numbers, and fraction of ownership is easier to calculate with post-money numbers; you switch back and forth by adding or subtracting the amount of the investment.
It is also important to note that the share price is the same before and after the deal, which can also be shown with some simple algebraic manipulations.
For example, most Series A investors will look to take 30%-45% of the company on a fully-diluted basis for a $2-4m investment.
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