The founder of a company currently holds 12 million of the 15 million shares in that company. She considers an IPO where she sells a mix of primary shares and 2 million of her own secondary shares for $18 per share. If she wants to retain a 60% ownership of the company, how much money can she raise in this IPO?

Question

Quizplus · Accepted Answer

The total number of shares in the company is 15 million, and currently, the founder holds 12 million shares. This means that the founder owns 80% of the company (12/15).

If the founder wants to retain a 60% ownership, she must sell 20% of the company (80% - 60%). Since the company has 15 million shares, 20% of the company is 3 million shares.

The founder plans to sell 2 million of her own shares and an additional number of primary shares to raise the remaining 1 million shares. Let's call the number of primary shares she plans to sell "x".

So, the total number of shares sold in the IPO is 2 million + x. We know that this equals the 1 million shares she must sell to reach a 60% ownership.

2 million + x = 3 million

Therefore, x = 1 million

So, the founder must sell 1 million primary shares and 2 million of her own shares, for a total of 3 million shares. At $18 per share, this would raise:

3 million shares * $18 per share = $54 million

Therefore, the founder can raise $54 million in this IPO.

The Founder of a Company Currently Holds 12 Million of the 15