EmergEx Medical is a start-up company that has developed a life-saving medical device that can be used in emergency rooms, on battlefield clinics, and in other trauma-related facilities. The device is patent protected and is almost through the required FDA testing and approval. The company hopes to get the product to market in the next 9 months. The founders are a team comprised of an emergency room doctor who developed the concept, an engineer who developed the product, and a former VP of sales for another medical device company. While the company does not yet have sales, they have had a lot of interest from hospital emergency room doctors.

This company will need significant money as they 

1) finalize FDA testing, 

2) finalize product design for mass production, 

3) find and negotiate contracts for manufacturing, 

4) establish sales channels and contract with distributors, 

5) market and sell products, 

6) continue R&D for follow-on products among other factors. Explain the likely sources of capital, the form that capital is likely to take, and why in each of the stages listed below.

1. Early-stage in which the doctor and engineer are developing the idea and determining market potential. The funding required is approximately $25,000.
2. Seed stage in which the 3 founders will develop a prototype, begin the patent process, and begin FDA application and testing. The funding required is $1.5 million.
3. Series A in which the product will complete FDA testing and the company will form contractual relationships with manufacturers and distributors. The company plans to begin sales at this point. The funding required is $15 million.

Stage:

Likely source(s) of capital and forms (debt, convertible debt, equity):

Why?:

Early

Seed

Series A

2- Cap Table 

In a seed round of raising capital, an angel investor provided a $500,000 convertible note with a 10% interest rate, a discount rate of 20%, and a cap of $3 million. In the Series A round that followed 365 days later, a VC firm invested $2 million with a pre-money valuation of $5 million. In the Series A round, the firm had 20,000,000 shares (fully diluted).

1. In the Series A round, what is the per share price for the Series A investor (VC firm)? _____________________________________________________________________________
2. In the Series A round, what is the per share price for the Angel? _____________________________________________________________________________
3. If these prices are different, explain why? _____________________________________________________________________________

Answer rating: 100% (QA)

To calculate the per share price for the Series A investor VC firm we first need to calculate the po... View the full answer