Assume a situation where an employee of a privately-held startup exercises a share option and receives 1 share and decides to leave. Per the option agreement the company has an 'option' to purchase all shares held by that employee at the Net Asset Value per share.

Other basic facts about Company X:

  • Company X is a technology startup that just received $1m cash from a VC based on a $5m valuation. This is due to the unique software it sells to customers.
  • Company X only holds the cash as an asset on the balance sheet and has no liabilities.
  • Company X recently had a non-binding offer to sell for $7m.

If the company decides to exercise the buyback option how will the 'net asset value' be calculated?

  • 1
    Any agreement that refers to something like 'Net Asset Value per share' should have definitions for these terms - and if they don't, then jurisdictional norms would likely prevail; typically speaking as someone seeing that term the way you've presented it, I would expect that the calculation of NAV should align with the system of accounting used by the company [likely referred to in that agreement - either US GAAP or IFRS or whatever]. – Grade 'Eh' Bacon Apr 6 at 22:07

If the company has $1 million in assets (it would be odd to take money from a VC just to hold it on the books) and $0 in liabilities, the net asset value of the company is $1 million. The net asset value of the shares would be $1 million divided by the number of shares outstanding.

  • Thanks Justin! So there is no consideration of 'intangibles' or fair market value when calculating net asset value? What definition is generally accepted in these matters, for example, is GAAP/IFRS relevant? – Harry Potter 33 Apr 6 at 20:04

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