VALUATION TWO ROUNDS

4. Suppose you are getting $500,000 in financing from VC1. VC1 required IRR is 50% for first 2 years and 25% for last two years. Exit is expected in 4 years at $4M. Founders have 1 M shares.

a. What is percent ownership required by VC?

b. What is ownership of founders after financing round?

c. What are post money and pre-money?

d. What is the share price?

Unexpectedly, the second investment of $1M is needed at end of year 2 and VC2 makes that investment.

e. What is the proportion ownership that VC2 will require?

f. How will that affect ownership of VC1 and founders? Give their specific percentage ownership.

g. What is the total number of shares after the second round?

h. What is the price per share after the second round? Is it an up or down round? Why?

i. Suppose VC1 knew that more financing will be needed in year 2, what would be the owner that she would require in the first round?

j. Following up on (i), what would be ownership of founders after round two?