Question

wo equal partners pitch Kevin O'Leary a $100,000 investment for 10%. Kevin counters with an offer of $250,000 for 30%. Jim Treliving jumps in and offers $200,000 for 15% Which deal is likely to happen? Why? How much will each co-founder own if a deal gets done. (Show all calculations and pizza pie diagrams you use) A year after that deal, they accept an additional offer of $2,000,000 for 50%. What % does each founder own after this deal. How much is that equity now worth? (Show all calculations and pizza pie diagrams you use)

Answer 1

The offer of $200,000 for 15% by Jim Treliving is most likely to happen. Out of all the three options, the offer by Jim Treliving values the company the highest. Wo equal partners are most likely to accept the offer of Jim Treliving since they will only lose an additional 5% share (50% more than what they had originally planned) but in turn will receive $100,000 (100% more than their original valuation).

After the deal Jim Treliving will own 15% share valued at $200,000

The Co-founders will be owning the remaining shares in equal proportions. So their share will be,

(100% - 15%) / 2 = 42.5%

Equity value of Co-founders = $200,000 / 15% * 42.5% = $566,666,67 each

After a year, if the co-founders accept the additional offer of $2,000,000 for 50% share in the company, the co-founders will own 17.5% ((100% - 15% - 50%)/2) each.

Jim Treliving will own 65% (15% + 50%).

The total equity value of the company will be $4,000,000 ($2,000,000 / 50% * 100%)

Jim Treliving's share = $4,000,000 * 65% = $2,600,000

Co-founder's share = $4,000,000 * 17.5% = $700,000 each