Question

You have started a company and are in luck long dash —a venture capitalist has offered to invest. You own 100% of the company with 4.66 million shares. The VC offers $1.03 million for 790, 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 $__________ million. (Round to two decimal places.)

c. What fraction of the firm will you own after the investment?

Your fractional ownership will be__________ %. (Round to one decimal place.)

Answer 1

Implied price per share can be found out by finding out the price per share at which the venture capitalist has decided to invest in the business. Therefore, if the VC has invested $ 1.03 Million for790,000 new shares, the implied rate per share at which he has bought this can be found by = Total investment / Total no. of shares purchased

= $ 1,030,000 / 790,000

= $ 1.30 (rounding off to two decimal places)

Post money valuation is the value of the business after a round of investment. This can be found by using the formula,

=(Total number of shares post investment * Implied per share price at which the investor bought the shares)

= (4,660,000 + 790,000) + $ 1.30

= 5,450,000 * 1.30

= $ 7,085,000

The fraction of ownership after a round of investment can be determined by finding the number of shares held by the owner out of the total number of shares in the business.

= No. of shares held by the owner / Total number of shares issued

= 4,660,000 / 5,450,000

=0.855

= 85.5%

Therefore, the owner has maintained a majority ownership by holding 85.5% of shares after the funding.

a) The implied price per share will be $ 1.30 per share.

b) The post-money valuation will be $ 7.085 Million.

c) Your fractional ownership will be 85.5%