An entrepreneur founded his company using $200 000 of his own money, issuing himself 200 000 shares. An angel investor bought an additional 100 000 shares for $200 000. The entrepreneur now sells another 400 000 shares to a venture capitalist for $1 million. What is the post-money valuation of the company?

Question

Quizplus · Accepted Answer

The pre-money valuation of the company is the value of the company before the investment. This is equal to the total value of the company minus the investment, so the pre-money valuation is $200,000 (the value of the 200,000 shares already issued).

The post-money valuation is the value of the company after the investment. This is equal to the pre-money valuation plus the investment, so the post-money valuation is $1,200,000 ($200,000 pre-money valuation + $1,000,000 investment from the venture capitalist).

Therefore, the post-money valuation of the company is $1,200,000, making choice C the correct answer.

An Entrepreneur Founded His Company Using $200 000 of His