Ethelbert.com is a young software company owned by two entrepreneurs. It currently needs to raise $560,000 to support its expansion plans. A venture capitalist is prepared to provide the cash in return for a 20% holding in the company. Under the plans for the investment, the VC will hold 18,000 shares in the company and the two entrepreneurs will have combined holdings of 23,000 shares.
a. What is the total after-the-money valuation of the firm? (Enter your answer in dollars not millions.)
b. What value is the venture capitalist placing on each share?
AND
You have purchased 1 million shares in a restaurant chain venture. At this zero-stage investment, your company's assets are $160,000 plus the idea for your new product.
Look back at your restaurant chain venture. Suppose that when you first approach your friendly VC, he decides that your shares are worth only $0.70 each.
a. How many shares will you need to sell to raise the additional $917,000?
b. What fraction of the firm will you own after the VC investment? (Round your answer to 1 decimal place.)