Question

In 20x0, you invested $30,000 to start your company. Below are the details for 3 rounds of financing, each from a different investor.

Date Round Pre Money Valuation New Investors' Dollars

20x2 1 400,000 100,000

20x4 2 2,000,000 500,000

20x7 3 7,000,000 1,000,000

a) After the 20x7 investment by new investors, what was your ownership percentage, and the ownership percentages of the other 3 investors?

b) Suppose you gave the 20x2 investors a non-dilution guarantee. Redo part a.

Answer 1

a) After 20X2 round (1st round) of financing, my ownership

= pre money valuation/post-money valuation*% share in pre-money valuation

=400,000/500,000*100% = 80%

Ownership % of 1st round investor = 20%

After 20X4 round (2nd round) of financing, my ownership   

= 2,000,000/(2,000,000+500,000)*80% = 64%

Ownership % of 1st round investor = 2,000,000/(2,000,000+500,000)* 20% = 16%

Ownership % of 2nd round investors = 100%-64%-16%= 20%

After 20X7 round of financing, my ownership   

= 7,000,000/(7,000,000+1,000,000)*64% = 56%

Ownership % of 1st round investor = 7,000,000/(7,000,000+1,000,000)* 16% = 14%

Ownership % of 2nd round investors = 7,000,000/(7,000,000+1,000,000)* 20% = 17.5%

Ownership % of 3rd round investors = 100%-56%-14%-17.5%= 12.50%

b) In this case, the founders have to trade in ownership with the 20X2 (1st round of investors) to maintain their 20% ownership

After 20X4 round (2nd round) of financing, my ownership   

= 2,000,000/(2,000,000+500,000)*80% = 64%

Ownership % of 1st round investor = 2,000,000/(2,000,000+500,000)* 20% = 16%

Due to non-dilution clause, my ownership = 60%,

Ownership % of 1st round investor = 20%

Ownership % of 2nd round investors = 100%-64%-16%= 20%

After 20X7 round of financing, my ownership   

= 7,000,000/(7,000,000+1,000,000)*60% = 52.50%

Ownership % of 1st round investor = 7,000,000/(7,000,000+1,000,000)* 20% = 17.5%

Due to non-dilution clause, my ownership = 52.5% - (20%-17.5%) = 50%,

Ownership % of 1st round investor = 20%

Ownership % of 2nd round investors = 7,000,000/(7,000,000+1,000,000)* 20% = 17.5%

Ownership % of 3rd round investors = 100%-56%-14%-17.5%= 12.50%