At Kruze Consulting, we work closely with venture capital-backed startups, helping them navigate the complexities of accounting as they scale. One area that’s often misunderstood is additional paid-in capital (APIC). As long as you’re working with a good startup accountant, you shouldn’t have to think about APIC too much. But as a founder raising capital and offering stock options, you’re going to see APIC on your balance sheet, and you may wonder what it represents. Let’s look at APIC and how it works.

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What is APIC?

APIC represents the amount of money your investors have paid for shares above the par value ** ** of the stock. So what is par value? Par value is a nominal amount assigned to each share of stock – often set very low (sometimes as little as a penny). While par value doesn’t hold much practical significance on its own, it serves as the foundation for calculating APIC.

When your startup raises capital, investors purchase shares of your company, and the cash received from those shares increases the asset side of your balance sheet. On the other side, your equity increases, with two main components: par value and additional paid-in capital (APIC).

How you calculate APIC

APIC is calculated by subtracting the par value of the shares from the issuance price and then multiplying it by the number of shares issued. Here’s a simple example:

Let’s say your startup is selling shares for $5 each, and the par value is $0.01 per share.

The formula for APIC would be:

APIC = (Issuance Price – Par Value) × Number of Shares

For one share: APIC = ($5.00 - $0.01) = $4.99 per share

So, for each share sold, the APIC would be $4.99.

What happens when your stock price changes?

If your startup raises capital at different valuations over time, the APIC remains tied to the specific issuance price at the time of each funding round. For example, let’s say your company raises capital again at a $10 per share valuation, while the par value remains at $0.01 per share. The APIC for the new shares would be $9.99 per share, but the APIC for the previous shares sold at $5 per share would remain unchanged.

Why does APIC matter for startups?

For most startups, APIC isn’t the most critical number, but you still need to track it correctly. Investors, especially VCs, expect accrual accounting and look at the equity section of your balance sheet to understand how the company has been capitalized. When your APIC is accurately calculated and displayed, it helps VCs assess your capital structure, and gives them confidence that you are managing their investment properly.

Accounting for fundraising costs

Fundraising often comes with costs, such as legal fees and accounting fees. These costs are typically capitalized as assets on your balance sheet and can impact your APIC. Most VCs, however, prefer to reduce the APIC by the fundraising costs directly to keep the accounting cleaner and more understandable.

When your company reaches later stages, such as Series C or D, you’ll likely go through an audit, and this can be a good time to clean up any discrepancies. Working with a qualified accountant is crucial at every stage to make sure your startup is compliant and accurate!

Make sure you get APIC right

While APIC might not be the top priority for most startup founders, you still need to get it right. Transparent and straightforward accounting of your equity structure on your balance sheet will not only give your investors confidence, but it will also help you as you grow your business. Keeping things simple and easy to understand can make your financials more accessible and attractive to investors, which can help you raise the capital you need.

At Kruze Consulting, we’ve helped startups raise billions in funding. We know what VCs want to see, and we work closely with founders to make sure they’re set up for success. If you have any other questions on APIC, startup investing, or startup accounting, please contact us. You can also follow our YouTube channel and our blog for information about accounting, finance, HR, and taxes for startups!