When a company makes a new share issue, a subscription price is always set. This is the price investors pay for each new share. The subscription price is often set lower than the current market price of the share, making it more attractive for both existing shareholders and new investors to participate and contribute capital to the company.
How is the subscription price determined?
The company takes several factors into account when setting the subscription price. These include the current value of the company, the need for new capital and how much it wants existing shareholders to be able to participate. Sometimes the company enlists the help of financial advisers to make an accurate valuation. A price that is too low can dilute the value for existing shareholders, while a price that is too high can make it harder to attract investors.
The subscription price for you as an investor
For you as an investor, the subscription price determines whether the new issue seems interesting. If the share price is at a level that offers the possibility of future value growth, it can be a good opportunity to increase your ownership. At the same time, there is always a risk. If the company does not develop as planned, the value of the shares may fall. It is therefore important to understand both the price and the potential of the company before you decide.
Other things to consider
The subscription price also affects how much capital you need to put in to keep the same shareholding. If you don't participate, your share of the company may decrease, which is called dilution. Understanding this will help you make decisions that are in line with your strategy and risk profile.
Stockbroker with experience in new share issues
At Monitor Capital Markets, we have extensive experience of new share issues, particularly in unlisted companies. We can provide guidance on how the subscription price affects both investors and the company, and how to structure the process in a clear way. Our services make it easier to understand the price in practice, assess risks and make informed investment decisions. Read more about our services about us and how we work.
A selection of companies where we’ve facilitated transactions →
We broker deals in both innovative startups and established corporations. So far, we've completed transactions in more than 130 companies – and we actively track and have insight into over 1,000 companies. Our broad investor network means new opportunities are always on our radar.