If there is no ratchet agreement, what will be the post‐money value after the $500,000 investment?

A venture with 2 million total common shares – 1.4 million owned by the entrepreneur and 0.6 million by an angel investor – had a post‐money value of $8 million after its last (and only) round of outside financing. The company has run into some development delays and needs to raise additional capital. A new investor offers $500,000 in exchange for 200,000 new common shares.

If there is no ratchet agreement, what will be the post‐money value after the $500,000 investment?

(Note: the answer is not $8,500,000)

Expert Solution

Price offered by new investor = 500000/200000 =2.5

Total no of shares after 500000 investment = 2000000 + 200000 = 220000

Post money valuation = 2200000 x 2.5 = 5500000

Answer : 5500000

jeff jeffy answered 2 years ago

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