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A capital increase has a major impact on a company’s shareholding structure. The example of Mistral AI illustrates the analysis of several successive fundraising rounds with rapidly increasing valuations. These complex operations require the support of professionals to secure the deal and structure the relationship, notably through a shareholders’ agreement.
A capital increase is a relatively straightforward legal operation but nonetheless highly impactful for existing shareholders, who effectively agree to share information, power, profits, and/or future capital gains.
This is especially true for startups geared toward hypergrowth. When professional investors enter the capital, acceleration and a planned exit become the norm: the median exit time for these investors is six years, which is twice as fast as for companies developing purely through self-financing (source: Avolta).
To analyze a capital increase, it is helpful to start with a real case and public data, such as the artificial intelligence startup Mistral AI, created in May 2023 in Paris.
Its articles of incorporation indicate an initial share capital of €15,000 divided into 1.5 million shares with a nominal value of €0.01, held 95.3% equally by the three operational co-founders. The remaining 4.7% is equally owned by four individuals or entities providing expertise in strategy, finance, and lobbying.
The co-founders thus own the entirety of the initial capital, as summarized below.
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However, such a company cannot grow purely through self-financing: prior to its creation, discussions were likely already underway with investors. The first fundraising round occurred less than two months after the company’s establishment, with a €105 million capital increase based on a €240 million post-money valuation (which includes the investors’ contribution). The founders’ shares were thus valued at €240M – €105M = €135M pre-money, as financiers would say. This valuation of €135M less than two months after the company’s creation is 9,000 times higher than the initial €15,000 contribution: a share subscribed at €0.01 during incorporation is now theoretically worth €90, representing a share premium of €89.99 for a share with a nominal value of €0.01.
With their €105M contribution on a valuation of €240M, the first investors hold 105/240 = 43.8% of the capital. The founders are diluted accordingly, dropping to 56.2% of the capital.
With a share valued at €90 and assuming a total subscription of €105,003,000 for simplicity, the investors hold 105,003,000 / 90 = 1,166,700 shares, representing exactly 43.8% of the total. Adding these newly created shares to the 1.5 million original shares, there are now 2,666,700 shares in total.
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Increased dilution but higher valuations in favorable cases
Following this first financing round, two other capital increases occurred within relatively short timeframes:
- December 2023: €385M funding on a post-money valuation of €1.86 billion, granting new investors 20.7% of the capital. The share value rose to €553.50, or 6.15 times the previous valuation.
- June 2024: €600M funding on a valuation of €5.8 billion, granting new investors 10.3% of the capital. The share value rose to €1,550, or 2.8 times the previous valuation.
The graph below summarizes the founders’ ownership, now controlling 40% of the capital, and that of the investors, who control 60%.
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These figures likely reflect reality but do not account for the following operations:
- Stock option plans: Information on stock options created to attract and retain talent is unavailable. While these dilute shareholders, they bolster the startup’s value, particularly given the fierce competition for AI talent.
- Convertible bonds: The announced financing might not consist entirely of equity but could include convertible bonds, which are less dilutive if repaid rather than converted into equity.
- Partial cash-outs for co-founders: These involve selling part of their capital for « real cash » to avoid holding only paper assets.
Work with professionals to focus on what really matters!
The analysis of Mistral AI’s successive capital increases shows that the simplicity mentioned at the start of this article is quite relative. It underscores the importance of working with top-tier professionals who can help secure these operations and allow you to focus on the essentials: teams, clients, products, and strategic partners.
Indeed, creating new shares often involves a complex shareholders’ agreement formalizing relationships among shareholders. Legal improvisation can be costly and leave founders and executives in a legal no man’s land, ultimately draining their resources.
The figures for Mistral AI are staggering, reflecting exceptional amounts raised rapidly with sky-high valuations. However, these figures pale in comparison to OpenAI, which announced in October 2024 a $6.6 billion (€6.3B) fundraising round at a $157 billion (€149B) valuation—ten times Mistral AI’s funding and 27 times its valuation.
The amounts at stake are commensurate with the industrial revolution we are both witnessing and participating in. While a significant correction in the valuations of several iconic AI players is likely, the way we produce, and trade will be transformed. This explains investors’ appetite for this creative destruction —a very Schumpeterian dynamic— unfolding on a global scale.
