A founder (F) develops a startup (SU) in his garage. A neighboring angel (A) off

Question

A founder (F) develops a startup (SU) in his garage. A neighboring angel (A) offers $1M for 25% of SU. They (F&A;) decide - arbitrarily- to have SU comprised of 4,000 shares at a price of $1 per share. 1. a. What is the value of SU? b. Describe this transaction in the "pre-post format". c. Provide the cap table of S at this point. Now, a venture capitalist (VC) offers F&A; $2M for 20% of SU. d. What is the value of SU? e. What is the price of SU? f. Is this an up-round or down-round? 8. Describe this tr

Explanation / Answer

a) If 25% of SU costs $ 1 M, the value of SU is (1/.25) * $ 1 M = $ 4 M

b) Post-money = pre-money + capital raise = 0 + $ 4 M = $ 4 M

c)

d) $2 M for 20% of SU means value is (1/.2) * $2 M = $10 M

e) Price of SU is also $10 M

f) It is an up round as value increased

g) Post-money = pre-money + capital raise = $ 10 M = $ 4 M + $ 6 M

Cap tab Common stock (4000 authorized) Investor (1000 authorized) 1000 Founder (3000 authorized) 3000 Total shares issued and outstanding 4000

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