Question

An investor offers you $801,066 in exchange for shares of your start-up company. The investor demands an annual rate of return of 62%, and expect that your IPO will be in 5 years. At that time you expect your firm to have annual income of around $1,811,566 dollars. A similar firm was recently acquired for $18,930,059 dollars. At the time of acquisition, their income was $1,573,471 million dollars per year.

What percentage of your equity should you give to the investor?

Enter your answer as a percentage, without decimals. For example, if your answer is 0.76543, that's 76.543%, which rounds to 77%.

In excel

Answer 1

With the income of $ 1,573,471 income, a similiar firm valued at $ 18,930,059.

With $ 1,811,566 income, valuation shall be = ( 18,930,059 / 1,573,471 ) * 1811566

                                                               = $ 21,794,523.87

Investors willl give $ 801,066

The % of equity shall be = 801,066 / 21,794,523.87

                                   = 3.68% Answer