5. (Series A)

Kathleen has just been contacted by PolyCanyon Ventures (PCV), a Cal Poly-focused investment fund, which is interested in making an investment in her company. PCV plans to buy an equity stake in the company. The startup expects to use the funds received from the financing to improve their product, hire additional developers, and for expenses associated with outreach and onboarding of the private equity and corporate consulting groups.

PCV offers Kathleen $2.5 million for 20% of the company (Teachers note: In real life PCV makes much smaller investments). PCV is nervous that Kathleen hasn't established an option pool and therefore requires a 10% option pool be created before they will invest a single dollar. The parties agree that the share price will be $1 per share. Build the cap table before and after this Series A funding round and use it to answer the following questions.

Question:

How much will Kathleen's stock be worth in $'s after the Series A investment if she accepts this deal?