The entrepreneur has 4 million shares. Before round 1, an employee stock option pool (ESOP) is set up to have 10% of ownership at the planned exit at the end of year 4. 

The first round of investors and entrepreneurs agree that in 4 years the terminal value of the company will be $50 million (if the company receives investment as planned). 

First-round investors are willing to invest $4 million and are anticipating a 40% per-year return. 

The entrepreneur and the first-round investors believe there will be a second round of investment needed at the end of the second year (beginning of the 3rd year) of $2 million. The second-round investors are estimated to require a return of 25% per year for the remaining two years. 

The first-round investors will not be diluted by the anticipated second round of investment.

What would the capital table and projected valuations be for Rounds 1 and 2 of investment?

Answer rating: 100% (QA)

Here is the capital table and projected valuations for Rounds 1 and 2 of investment Round 1 Entrepre... View the full answer