Question

You founded your own firm three years ago. You initially contributed $200,000 of your own money and in return you received 3 million shares of stock. Since then, you have sold an additional 2 million shares of stock to angel investors. You are now considering raising capital from a venture capital firm. This venture capital firm would invest $5 million and would receive 4 million newly issued shares in return. Suppose you sold the 2 million shares to the angel investor for $500,000. What was the post-money valuation of your shares immediately following the angel investor's investment?

Answer 1

Particulars Amount Shares

First Round of Financing 200000 3000000

Second Round of Financing to angel investor     500000 2000000

Total 700000 5000000

Investment by Venture Capitalist 5000000 2000000

price per share of share issue to venture capitalist 5000000/2000000 =2.5

Therefore total value of firm-2.5*(5000000+2000000)=   17500000

1. Total Share of firm -7million

2. Share held by you -3million

% of share held by you 3/7*100=42.85%

therefore value of shares held by you post investment by Venture capitalist-17500000*42.85%=7500000(Apprx)

Calculation of value of share held by you  following the angel investor's investment

no of share sold to angel investor 2000000 for $ 500000 therefore price per share $0.25

Therefore total value of firm-0.25*5000000   1250000

1. Total Share of firm -5million

2. Share held by you -3million

% of share held by you 3/5*100=60%

therefore value of shares held by you post investment by Angel Investor-1250000*60%=75000(Apprx)