Warrants can align stakeholder incentives with shareholder interests, but they complicate the share count at different valuations and can cloud what you really own.
There are two main steps to valuing equity:
- Value the underlying business.
- Divide that by the stakeholders; first the debt holders, then the rest by the shares outstanding to figure out what an equity holder gets.
In other words, first figure out the size of the pie and then how many slices there are. A future article will consider valuing the business, and this will focus only on slicing at different values.