q4 q4

After experiencing failure in her first startup attempt, Elizabeth Holmes has decided to learn from her failures and launch her next venture, a real-time fraud detection test that people can use to determine at any time if someone is lying to them. She incorporates the company, Fraudranos, and issues 5M shares. She is able to bootstrap the company for the first year, but when initial hardware prototypes are needed she patches together $350,000 from a network of Angel investors who collectively agree to terms for 12% of the company. In addition, as part of their investment they require that Ms. Holmes set up an option pool equal to 10% of the post-financing fully diluted capitalization before they invest. After another 12 months, another VC (Sand Hill Demon Partners) is considering an investment of $7M for a series A, but requires 25% ownership and requires an additional option pool equal to 10% of the post-financing fully diluted capitalization for them to invest because they believe that people who actually have medical experience need to be brought into the venture ASAP.

Question:

After the series A round, assuming no options have been granted to date, what is the cumulative number of options available in the collective pools?

a) 2,315,642

b) 2,626,421

c) 1,627,219

d) 4,183,275

e) 1,100,967