Question

Starware Software was founded last year to develop software for gaming applications. The founder initially invested $ 1 comma 000 comma 000 and received 12 million shares of stock. Starware now needs to raise a second round of​ capital, and it has identified a venture capitalist who is interested in investing. This venture capitalist will invest $ 1.20 million and wants to own 17 % of the company after the investment is completed. a. How many shares must the venture capitalist receive to end up with 17 % of the​ company? What is the implied price per share of this funding​ round? b. What will the value of the whole firm be after this investment​ (the post-money​ valuation)?

Answer 1

ANSWER DOWN BELOW. FEEL FREE TO ASK ANY DOUBTS. THUMBS UP PLEASE.

a. 83% of shares will be owned by Starware software, After the investment by venture capitalist.

83% shares = 12,000,000

So 100% share value = 12,000,000 × 100%/83% = 14,457,831.33 shares

a1. So the venture capitalist will get 17% of total shares = 17% *14,457,831.33 = ,2,457,832 shares

a2. venture capitalist will give 1.2 million for 2,457,832 shares

so implied price = $1,200,000/2,457,832 shares = 0.488/share

b. Value of whole firm after Investment = Total outstanding shares * implied price = 14,457,831.33* 0.488235294 = $7,058,823.53 (Ans)