How To Calculate Proceeds From Ipo

How to calculate proceeds from ipo

Hello, I was reviewing a guide and am confused by this question / answer:

Walk me through an IPO valuation for a company that's about to go public.

  1. Unlike normal valuations, for an IPO valuation we only care about public
    company comparables.
  2. After picking the public company comparables we decide on the most relevant
    multiple to use and then estimate our company's Enterprise Value based on that.
  3. Once we have the Enterprise Value, we work backward to get to equity value
    and also subtract the IPO proceeds because this is "new" cash.
  4. Then we divide by the total number of shares (old and newly created) to get its
    per-share price.

    How to calculate proceeds from ipo

    When people say "An IPO priced at..." this is what they're
    referring to.

I don't really understand this at all. First, for step 3, why would you deduct the proceeds? Shouldn't the pro forma share price = (status quo implied equity value + new proceeds) / (existing shares + new shares)?

Second, for step 4, isn't this circular?

How to Evaluate an Initial Public Offering (IPO)

You need the price to get newly created shares and vice versa. I can't seem to get excel to solve something like this.

Most importantly, why is this not simply: (existing implied equity value) / (existing shares) = IPO price?

Would really appreciate some help!

How to calculate proceeds from ipo