Starware Software was founded last year to develop software for gaming applications. Initially, the founder invested $800,000 and received 8 million shares of stock. Starware now needs to raise a second round of capital, and it has identified an interested venture capitalist. This venture capitalist will invest $1 million and wants to own 20% of the company after the investment is completed.
a) How many shares must the venture capitalist receive to end up with 20% of the company? What is the implied price per share of this funding round?
b) What will the value of the whole firm be after this investment (the post-money valuation)?