Question

An entrepreneur has 2000 shares. An angel invested $1000 for 1000 shares. A new investor would have been willing to invest $500 for 1000 shares if there were no ratchet in the first round (a price of $0.50) per share. So the total value of the venture is $2000 and the new investor would own 25% of the value. At what price per share would the new investor be willing to invest if the first-round investor has a full ratchet?

A. $0.10 per share B. $0.25 per share. C. $0.50 per share. D. $1.00 per share.

Answer 1

An entrepreneur has 2000 shares.

An angel invested $1000 for 1000 shares

Then the value of each share that is sell by the entrepreneur =total price of share/total share=$1000/1000= $1

A new investor would have been willing to invest $500 for 1000 shares

Then the value of each share that is sell by the entrepreneur =total price of share/total share= $500/ 1000=$0.5

In the 1st round there is no ratchet on price of $0.5/share , so total price of the venture is $2000

The new investor owns 25% of the value

then the value of share own by investor =total share price* % own/100=$2000*25/100=$500

Since the value of venture is $2000, so the price/ share=$1/ sahre

The price per share the investor will invest=$500/500 share=$1/ share

So here D is the right answer