Question
Shark A offers entrepreneur B to invest $5m in entrepreneur Bs start-up, for 20% in the start-ups equity. Entrepreneur B, however, believes that the start-up
Shark A offers entrepreneur B to invest $5m in entrepreneur Bs start-up, for 20% in the start-ups equity. Entrepreneur B, however, believes that the start-up has current premoney valuation of $35m and thus counters by offering Shark A the following: Shark A would invest the $5m in entrepreneur Bs start-up in exchange for alpha percent in the start-ups equity. What pre-money valuation of the start-up does Shark As offer reflect? What is alpha (i.e., the percentage in the start-ups equity that entrepreneur B is willing to offer Shark A based on entrepreneur Bs counter offer)? (a) $20m; 20.0% (b) $25m; 10.5% (c) $20m; 12.5% (d) $25m; 25.0% (e) $20m; 17.5%
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