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You founded your own firm two years ago. You initially contributed $250 000 of your own money and in return you received 2.5 million shares of stock. Since then, you have sold an additional 1.25 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 2 million newly issued shares in return.
-After the venture capitalist's investment, the post-money valuation of the angel investor's shares is closest to:

Question

Quizplus · Accepted Answer

Before the venture capitalist's investment:
The value of the firm's equity = 2.5 million + 1.25 million = 3.75 million shares
The value per share = $250,000 / 2.5 million shares = $0.1 per share
So, the value of the firm's equity = 3.75 million shares x $0.1 per share = $375,000

After the venture capitalist's investment:
The total value of the firm's equity = $375,000 + $5 million = $5.375 million
The total number of shares after the investment = 2.5 million + 1.25 million + 2 million = 5.75 million
So, the value per share after the investment = $5.375 million / 5.75 million shares = $0.937 per share
Therefore, the post-money valuation of the angel investor's shares is 1.25 million shares x $0.937 per share = $1.171 million, closest to option C.

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