Assume the following:

1. There are one million shares outstanding, and they are all owned by the founders.

2. There are no employee stock options granted.

3. The pre-money valuation, ignoring the dilution by potential stock options, is $20 million.

4. A new investor from whom the company is seeking funds wants a 20% interest in the

company and invests $5 million.

5. The new investor wants 15% post-money valuation for the option pool available.

6. The security purchased is a convertible preferred stock that entitles the investor to

convert the security into common stock.