Some years ago you started your own firm and you own all of the 500 000 outstanding stocks. Now you need additional capital in order to grow. A venture capitalist is willing to invest $1 million for a 40% share in your company. You plan to issue new shares to sell to the venture capitalist.

a. How many shares must you issue and sell to the venture capitalist so that they end up with 40% of your company?

b. Now assume that you sold 250 000 new shares to the venture capitalist for $1 million. What was the Pre-Money Valuation of your firm?