Question

Your​ start-up company needs capital. Right​ now, you own 100% of the firm with 10.4 million shares. You have received two offers from venture capitalists. The first offers to invest $3.09 million for 1.01 million new shares. The second offers $2.03 million for 477,000 new shares.

a. What is the first​ offer's post-money valuation of the​ firm?

b. What is the second​ offer's post-money valuation of the​ firm?

c. What is the difference in the percentage dilution caused by each​ offer?

d. What is the dilution per dollar invested for each​ offer?

Answer 1

since these are separate questions so i will answer first three of it

a. The price per share = $3.09 million /1.01 million = $3.06 per share

Post money valuation = $3.06 x (10.4+1.01) million shares = $3.06 x 11.41 million = $34.92 million.

b. The price per share = $2.03 million /477,000 million = $4.26 per share

Post money valuation = $4.26 x (10.4+0.477) million shares = $4.26 x 10.877 million = $46.34 million.

c. For calculating the dilution we need to subtract new ownership % from the original 100% ownership

First offer =  100% - (10.4/11.41)% = 100% - 91.15% = 8.85%

Second offer = 100% - (10.4/10.877)% = 100% - 95.62% = 4.38%

The percentage different in dilution would be = 8.85% - 4.38% = 4.47%