Question

A company asks an investor for an investment of $950,000 in exchange for 25% equity in the business. What is the implied valuation of the business?

Answer 1

$2,850,000

Explanation:

Data provided in the question:

Investment amount asked for by the company = $950,000

Exchange of equity = 25%

Now,

Equity exchanged =
`\frac{\textup{Amount invested}}{\textup{Post money evaluation}}*100`

or

Post money evaluation =
`\frac{\textup{950,000}}{\textup{25}}*100`

or

Post money evaluation = $3,800,000

Therefore,

Implied valuation = Post money evaluation - Amount invested

or

Implied valuation = $3,800,000 - $950,000 = $2,850,000