The founders of the start-up need additional capital to expand the business and
ID: 1175486 • Letter: T
Question
The founders of the start-up need additional capital to expand the business and they arrange an “A” of financing with a venture capital firm that agrees to provide $2,000,000 in exchange for 40% ownership; however to invest in the start-up the Series “A” investors require Participating Preferred shares as follows: Participating Preferred shares with senior priority in receiving all proceeds from a sale or liquidation, up to the original investment amount ($2,000,000) Owners / Investors Security Shares Percent Investment Share Price Founders Common 6,000,000 60% $50,000 $0.0083 Series A Participating Preferred 4,000,000 40% $2,000,000 $0.50 The Pre-Money Valuation is $3,000,000 The Post-Money Valuation is $5,000,000 If the company were sold for $3,000,000
29. How much money would the Series A investors receive?
30. How much money would the founders receive?
If the company were sold for $6,000,000 31.
How much money would the Series A investors receive?
32. How much money would the founders receive?
Explanation / Answer
Owners/Investors Security Shares Investment Share Price Owners Common 6000000 $50,000 $0.00833 60% A Participating preferred 4000000 $2,000,000 $0.50 40% Pre-Money Valuation is $3000000 Post-Money Valuation is $5000000 If company sold for $ 3000000 Money investors of Series A would receive Proceeds to A - Original investment (2000000) + Share in the remaining (1000000*40%) 2000000+400000 $2,400,000 Money founder wld receive Proceeds to owners - (3000000-2400000) 600000 $600,000 If company sold for $ 6000000 Money investors of Series A would receive Proceeds to A - Original investment (2000000) + Share in the remaining (4000000*40%) 2000000+1600000 $3,600,000 Money founder wld receive Proceeds to owners - (6000000-3600000) 2400000 $2,400,000
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