Question

The entrepreneur invested $1000 a year ago at $1 per share. An VC investor has now...

The entrepreneur invested $1000 a year ago at $1 per share. An VC investor has now invested $5000 in exchange for 2000 preferred shares. The preferred shares have full-ratchet anti-dilution protection. What can you say about the value per share of the entrepreneur's shares after the VC round?

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Answer #1

Number of shars received by Entrpreneur = $1000/$1 = 1000 shares

Total Shares after VC's Investment = 1000+2000 = 3000 shares

Value of Company after VC's Investment = $1000+$5000 = $6000

Value PER SHARE after VC's Investment = $6000/3000 shares = $2 per share

Therefore, Entrepreneur's Share after VC's Investment = 1000 shares @ $2 per share = $2000

Note: Preference Shares, Full-Rachet Anti-Dilution Protection, is IRRELEVANT at the time of VC's Investment. It will give advantage to VC, when further new shares are issued.

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