Question

1. Refer to the cap table in Exhibit 5. Assume the company is contemplating raising a Series C round. If a $10 million Series C round takes place at a $40 million post-money valuation, how much does VC2 need to invest to maintain its 20% ownership stake?

1. 1.5 million
2. 4.0 million
3. 2.5 million
4. 2.0 million

Answer 1

answer = D = 2.0 million.

Based on cap table in exhibit 5 ,

Here the situation is that , the company raises series of C round . And $ 10 million series takes place at $40 million post money valuation . In this situation , at $ 40 million post money dilutes. Its by 25 percent for the retained investing members there. That is the already retained investors of them.

There by VC2 without any amount deposited there , which will dilute to 15 percent. But here , in the question it asks that , how much does vc2 needs to invest to maintain that 20 percent. Here , asper the above we discussed, its needed 5 percent ownership stake more to reach to 20 percent.

As you know $ 10 million buys 25 percent. Thus need to buy 20 percent of the c round. That means you know what ? 20 percent of $10 million. Thats is amounted as $2 million.thus the VC2  needed to invest $2 million to maintain a 20 percent ownership stake there.