You have started a company and are in luck-a venture capitalist has offered to i
ID: 3221089 • Letter: Y
Question
You have started a company and are in luck-a venture capitalist has offered to invest. You own 100% of the company with 4.98 million shares. The VC offers $1.12 million for 770,000 new shares. a. What is the implied price per share? b. What is the post-money valuation? c. What fraction of the firm will you own after the investment? a. What is the implied price per share? The implied price per share will be $ per share. (Round to the nearest cent.) b. What is the post-money valuation? The post-money valuation will be $ (Round to the nearest dollar.) c. What fraction of the firm will you own after the investment? Your fractional ownership will be %. (Round to one decimal place.)Explanation / Answer
a) A venture capitalist is being allotted 770,000 shares at the price of $1,000,000.therfore to calcuate implied share price we have to divide total funds invested by venture capitalist by number of shares alloted.
total funds invested by venture Captilist (I0) is $1,120,000
No. of shares to be alloted to VC (S0) is 770,000
Therefore , implied share price of shares (P0) is calcaulted by the formula
Implied share price =I0/S0
Subtitute the values in the formula:
=$1,120,000/770,000
=1.45
Implied share price is $1.45
b.To calculate post money valuation of the firm, first we need to calculate total number of share after allotment .
Total number of shares after funding.
No. of shares before allotment S1 is 4,980,000
No. of share to be alloted to VC (S0) is 770,000
Total no. of shares=4,980,000+770,000
=5,750,000
Post money valution = S2*P0
= 5,750,000*$1.45
= $ 8,337,500
c) Percentage of holding remains after allotment to venture caplitalist is calculated on the basis of shares in hand (S1) and total number of shares (S2) after the allotment to venture venture capitalist
Hence % of holding is calculated
Percentage of Holding =S1/S2*100
Substitute the values in the formula
Percentage of holding = 4,980,000/5,750,000
= 86.6%
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