Question

Your start-up company needs capital. Right now, you own 100% of the firm with 9.9 million shares. You have received two offers from venture capitalists. The first offers to invest $ 2.94 million for 1.13 million new shares. The second offers $2.02 million for 503,000 new shares.

a. What is the first offer's post-money valuation of the firm?

The post-money valuation will be $_________. (Round to the nearest dollar.)

b. What is the second offer's post-money valuation of the firm?

The post-money valuation will be $______. (Round to the nearest dollar.)

c. What is the difference in the percentage dilution caused by each offer?

Offer 1 dilution will be ________ . (Round to three decimal places.)

Offer 2 dilution will be _________. (Round to three decimal places.)

The difference in dilution will be ________. (Round to three decimal places.)

d. What is the dilution per dollar invested for each offer?

Offer 1 dilution per dollar invested will be________. (Round to nine decimal places.)

Offer 2 dilution per dollar invested will be _______. (Round to nine decimal places.)

Answer 1

a)  First Offer:

Per share value offered = Investment offered / New Shares

= 2.94 mn/1.13 mn= $2.6017 per share

Post-money shares outstanding = old shares + new shares = 9.9 + 1.13 = 11.03 mn

So, post money valuation of the firm = shares outstanding x  per share value offered

= 11.03 mn x  $2.6017 = $28.6967 mn = $29 mn (rounded to nearest dollar)

b) Second Offer:

Per share value offered = Investment offered / New Shares

= 2.02 mn / 0.503 mn= $ 4.0159 per share

Post-money shares outstanding = old shares + new shares = 9.9 + 0.503 = 10.403 mn

So, post money valuation of the firm = shares outstanding x per share value offered

= 10.403 mn x $4.0159 = $41.7774 mn = $42 mn (rounded to nearest dollar)

c)

Offer-1 :- ownership post-money = 9.9 / 11.03 = 89.755%

So, dilution-1 = 100% - 89.755% = 10.245%

Offer-2 :- ownership post-money = 9.9 / 10.403 = 95.1648%

So, dilution-2 = 100% - 95.164% = 4.836%

Difference in dilution = 10.245 % - 4.836% = 5.409%

d)

Offer 1 - Dilition per dollar invested = dilution percentage/ investment made

= 10.245% / $2,940,000 = 0.000003484%

Offer 2- Dilition per dollar invested = dilution percentage/ investment made

= 4.836% / $2,020,000 = 0.000002394%