Question

Suppose a startup is looking to raise capital for a growing tech company. The founders are presented with term sheets from two different venture capital firms. The following highlights contain the main details and terms contained within each potential deal structure.

Investor A
Investment amount: $4,000,000
Investors: Investor A
Type of Security: Non Participating Preferred Equity
Postmoney Valuation: $9,000,000
Option Pool: 25% of post money value
Liquidation Preference: 1X
Anti-dilution: Weighted Average
Board Structure: Board of 3 members; Investor A holds 1 seat
No Shop Clause: 30 days

Investor B
Investment amount: $6,000,000
Investor Split: $3,000,000 by Investor B and $3,000,000 by Investor C
Security Type: Participating Preferred Equity
Premoney Valuation: $6,000,000
Option Pool: 15% of postmoney value
Liquidation Preference: 1X with 2.5X participating cap
Anti-dilution: Full Ratchet
Board Structure: Board of 3 members; each investor holds 1 seat
Pay-to-play: All investors required to purchase shares during any future down round or forfeit board seat
No Shop Clause: 6 weeks

How much of the company (percent ownership) will the founders retain under each scenario

Answer 1

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