Suppose on January 1 Convertible Investors Fund invests $8 million in Sam's Start-Up Inc through a convertible note that converts into the next round's equity at a 20% discount. On January 1, Sam's Start-Up Inc has 200 million shares outstanding (including shares in the employee stock pool).

Then suppose Sam's Start-Up has a round on March 1 where the March 1 investors invest $15 million at a pre-money of $40 million. 

Note the $40 million includes the shares in the employee stock pool but does not include the shares that will be issued to Convertible Investors Fund. Suppose the March 1 round does not include any expansion of the employee stock pool.

 

 a) What will be the share price immediately after the March 1 round closes?

 b) Immediately after the March 1 round closes, what percentage of the total equity of Sam's Start-Up Inc will be owned by the investors that invest the $15 million on March 1?

 c) Immediately after the March 1 round closes, what percentage of the total equity of Sam's Start-Up Inc will be owned by Convertible Investors Fund?

 d) How many shares will Sam's Start-Up Inc have outstanding (including shares in the employee pool) immediately after the March 1 round closes?

 e) Immediately after the March 1 round closes, how many shares of Sam's Start-Up Inc will be owned by the investors that invest the $15 million on March 1?

  f) Immediately after the March 1 round closes, how many shares of Sam's Start-Up Inc will be owned by Convertible Investors Fund?

 g) Suppose the investors that invest the $15 million on March 1 want their $15 million to buy ownership of 25% of all of the equity of Sam's Start-Up Inc. What pre-money value would they need to require to achieve this?

Answer rating: 100% (QA)

Lets break down each part of the question a Share Price Immediately After the March 1 Round Closes To calculate the share price immediately after the ... View the full answer