Question

You are about to sell your company for $50m. You currently own 60% of the company in the form of common stock. a venture capital fund owns 40% of your company in the form of Simple preferred stock with a 1.5x liquidation preference; they originally paid paid $10m for their stock. How much money does the VC fund get from the sale?

Answer 1

Answer-

Given

Selling price of company = $ 50m

We own = 60 % incommon stock
VC own = 40 % of preferred stock

VC own preferred stock = 1.5x
Original amount invested by VC = $ 10m

VC has a 1.5 x liquidation preference means that the VC gets to take 1.5x their original investment out of the company before any other shareholders get their first dollar.

That means VC will get 1.5 x 10m initially = 15m

The remaining amount = 50m - 15m = 35m

Now of these 35m the 60 % and 40 % are shared by the us and the VC fund respectively.