Question

Previously, an entrepreneur invested $1000 for 10,000 shares. An angel investor how has invested $2000 for...

Previously, an entrepreneur invested $1000 for 10,000 shares. An angel investor how has invested $2000 for 5000 shares. Is this an up-round or a down-round?

A.

An up-round
B.

A down-round
C.

There is not enough information to determine this.
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Homework Answers

Answer #1

An up-round. (which is Option A)

_____

Explanation:

An up-round would take place at a higher share price because of increase in company's valuation/wealth between the previous and current issue. As mentioned in the question, the second round of financing has been done at a share price of $2,000 which is higher as compared to the previous issue price of $1,000. Therefore, this would be considered a case of up-round and as such Option A is correct.

A case of down-round would occur when the company's valuation has declined over the period as a result of which the company offers its shares at a price (in the subsequent issue) lower than the previous issue. A company may have to sell its shares at a lower price because of poor performance or lower growth rate than what was anticipated. Therefore, Option B is incorrect.

Because Option A is correct, Option C is incorrect.

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