VALUATION – TWO ROUNDS

SKI Co.’s founders have 1.2 million in shares. They need financing in the amount of $700,000. VC1’s required IRR is 40% for first 2 years and 30% for last two years. The VC believes that exit will happen in 4 years at $5M.

What is percent ownership required by VC?

What is ownership of founders after financing round?

What is post money and pre money?

What is the share price?

What is the number of shares issued to VC1?

Unexpectedly, a second investment of $500,000 is needed at end of year 2 and a second VC 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 number of shares issued to VC2?

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

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

j. Suppose VC1 knew that a second round of financing will be needed in year 2, what would be the ownership that she would require in first round?

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

What would the ownership of founders be after round two?