Question

You founded your own firm three years ago. You initially contributed ​\$200,000 of your own money...

You founded your own firm three years ago. You initially contributed ​\$200,000 of your own money and in return you received 2 million shares of stock. Since​ then, you have sold an additional 1 million shares of stock to angel investors. You are now considering raising capital from a venture capital firm. This venture capital firm would invest​ \$5 million and would receive 2 million newly issued shares in return. Suppose you had sold the 1 million shares to the angel investor for ​\$500,000. What would have been your percentage ownership in the company immediately following the angel​ investor's investment?

Sol:

Your shareholding = 2 million shares

Angel investor shareholding = 1 million share

Total number of shares = 2 million + 1 million = 3 million

To determine your percentage ownership in the company immediately following the angel​ investor's investment:

Your percentage ownership = 2 million / 3 million = 0.666666 or 66.67%

Therefore your percentage ownership in the company immediately following the angel​ investor's investment will be approximate 66.67%

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