Question: A potential investor is seeking to invest $500,000 in a venture, which currently has 1,000,000 million shares held by its founders, and is targeting a 40% return five years from now. The venture is expected to produce half a million dollars in income per year at year 5. It is known that a similar venture recently earned net income of $1,000,000 and issued shares to the public for $9,000,000.
1. What is the number of shares that must be issued to the new investor in order for the investor to earn his/her target return?
2. What is the percent ownership of our venture that must be acquired by the new investor in order to provide them with their target return?
3. What is the issue price per share?
4. What is the pre-money valuation?
5. What is the post-money valuation?
6. What would be the impact on the percentage equity relinquished by the Entrepreneur if assumptions regarding r, T P/E, or I changed?