Share price and priced-in risk
Basic information about the valuation of a share and how various risks influence this price. Let's start with "Hooray, this is earth-shattering!"
Let's assume that someone, for example me, has an earth-shattering idea and thinks that this idea is worth €5,000,000,000,000. In slightly shorter terms, 5 trillion or 5,000 billion. So, let's divide that up into 5 million shares and each share is worth a million.
The chances of winning 2 Lotto 6s in a row are probably roughly equivalent to the chance of getting rid of a single share at that price. This is because even the best ideas have risks when it comes to implementation.
Tesla faced bankruptcy several times, in 2008 during the global economic crisis and in 2017 in production hell when the Model 3 production ramp-up was too slow.
What would have happened to SpaceX if Elon Musk hadn't had any money from the PayPal sale and had to finance SpaceX with investors?
Let's imagine an AGM in August 2008: 3 rockets have exploded while trying to reach orbit, the capital has been used up. Elon: I now need US$ 20 million for a fourth attempt. There would certainly have been an interjection: "At least the man has a sense of humor".
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Even big ideas start small
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March 2026 is about the foundation of GEMINI next Generation Zrt. in Hungary. The aim is to raise €20,000 to €40,000 as share capital. When pricing the shares: the biggest risk is not being able to raise the capital to build the prototype. With the best will in the world, I could not have imagined in 2022 that this would be a very significant risk.
So for €120 there are 30 shares for the shareholder and 10 for the Zrt. But what happens if someone suddenly wants to invest €400,000? With that amount of capital, the risk of "not being able to raise the capital for the prototype" would suddenly no longer exist. There would still be all the other risks, but the main risk would be eliminated.
There would then be personal negotiations that could end somewhere around € 360 for 30 shares, € 400,000 for 33,333 shares. Without this price correction, the new investor would gain a disproportionately large influence and the shares of the existing shareholders would be diluted too much.
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As long as it is not traded on the stock exchange, the CEO determines the price
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As in the example above: the share price must be in line with market realities. Pricing is a balancing act between the interests of existing shareholders and capital requirements. |