Your client wants to understand how founders and venture capital make so much money when a company "goes public." Solve the following example:Venture Capitalists and a company Founder decide to divide the company initially as follows: 100,000 common shares to the Founder, and 300,000 preferred shares to the Venture Capitalists. Each preferred share is convertible at the IPO into 1 share of common for each share of preferred. Luckily, the company does an IPO after 2 years, issuing new common shares, based on a valuation of the company at the IPO of $50 million.

If the founder does not want to be diluted below 10% ownership, but cannot purchase any of the new IPO shares, what share price and number of shares should be in the IPO?

A $30.00 per share, 300,000 share

B. $50.00 per share, 600,000 shares

C. $40.00 per share, 1,000,000 shares

D. $50.00 per share, 1,000,000 shares