Question 6: Suppose Elizabeth Entrepreneur (EE) raises her first round of ventur

Question

Question 6: Suppose Elizabeth Entrepreneur (EE) raises her first round of venture capital investment from Very Good Venture Capitalists (VC) in order to grow her company, University Food, Inc. (UFI) VC invests $2.3 million for 47% of the company on an "as converted basis" in Convertible Preferred Stock with a liquidity preference of 1x, and receives 4 million shares in UTI. What would be the payout to VC if the company is sold 5 years after the investment for $ 19 million? Format $12.3 million as 12.3

Explanation / Answer

VC initial investment = 2.3 million

VC stock holding = 47% or 4 million shares.

Total shares = (4/0.47) = 8.51 million shares.

Company is sold for 19 million so 1 share would be worth after 5 years = 19/8.51 = $2.23 per share

VC would be getting = $2.23 x 4 million = 8.92 million dollars.

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.