A start-up raised $5 million in convertible preferred equity financing from venture capital firm Alpha last year. Firm Alpha received 2.5 million Series A preferred shares at $2/share (conversion price $2). The start-up founder (only other shareholder) retained 4 million shares of common equity (no vesting period/employee pool/reserved shares). One of the start-up's projects failed early testing and the value of the start-up lowered by 40% relative to the post-money valuation of the initial financing round. Additional financing is needed to continue development. The start-up plans to issue $4 million worth of Series B stock to another venture capital firm Beta. Firm Beta will pay a per share price equal to the current pre-money valuation of the start-up divided by the number of common shares outstanding (as if converted).

a. What is the pre- and post- money valuation of the firm in the initial and second round of financing?

b. What is the per share price paid by firm Beta? How many common shares will be owned by firm Beta (on a converted basis)?

c. How many shares and what percentage of the firm are owned by each of the three parties (founder/firm Alpha/firm Beta) on an as-if-converted basis if the antidilution provision in Alpha's contract is...

-nonexistent

-full ratchet

-weighted average