Week 9 Problem Solutions
After the funding round, the founder’s 8 million shares will represent 80% ownership of the firm.
for the new total number of shares (TOTAL):
8,000,000 = .80*TOTAL
So TOTAL = 10,000,000 shares.
If the new total is 10 million shares, and the venture capitalist will end up
with 20%, then the venture capitalist must buy 2 million shares.
Given the investment of $1 million for 2
million shares, the implied price per share is $0.50.
After this investment, there will be 10 million shares outstanding, with a price of $0.50 per share, so the
post-money valuation is $5 million.
First, compute the cumulative total number of shares demanded at or above any given price:
The winning price should be $13.40, because investors have placed orders for a total of 1.8 million shares
at a price of $13.40 or higher.
Investors will receive a total of 10 million rights.
Since it takes ten rights to purchase one share, they will
be able to purchase 1 million shares.
At a price of $40/share, the company will be able to raise ($40/share)