You founded your own firm three years ago. You initially contributed $200,000 of

Question

You founded your own firm three years ago. You initially contributed $200,000 of your own money and in return you received 2 million shares of stock. Since then, you have sold an additional 1 million shares of stock to angel investors. You are now considering raising capital from a venture capital firm. This venture capital firm would invest $5 million and would receive 2 million newly issued shares in return.

Assuming that this is the venture capitalist's first investment in your firm, what percentage of the firm will the venture capitalist own?

A. 25%

B.33%

C.40%

D.50%

Explanation / Answer

= Shares held by venture capital fund÷Total shares

= 2 million÷5 million

= 40%

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