Description:

Your venture requires funding from an external investor before it could reach an exit in 5 years, with an estimated exit value of $80 million. You currently own all the 2,000,000 common shares of your venture. You're willing to consider a post-money valuation of $15 million to allow an external investor to invest $5 million in common shares of your venture. Investor A wants 20% lower than your proposed post-money valuation, as it justifies that it's able to help your venture establish a strategic business partnership which will enhance your estimated exit value of the venture by 30%.

Question:

You choose Investor A, but instead of lowering the post-money valuation by 20%, you have decided to insist on the $15 million post-money valuation, but will offer free warrants to Investor A instead. These warrants are exercisable only if Investor A delievrs the value-add enhanced exit value that it intended. Assuming each warrant allows Investor A to subscribe for one common share at almost no cost, how many warrants must be offered to Investor A in order to have the same valuation effect as what Investor A originally proposed.

Answer rating: 100% (QA)

To solve this problem we need to find the number of warrants that Investor A must be offered to have ... View the full answer