Question

You founded your own firm three years ago. You initially contributed $200,000 of your own money and in return you received 2 million shares of stock. Since then, you have sold an additional 1 million shares of stock to angel investors. You are now considering raising capital froma venture capital firm. This venture capital firm would invest $6 million and would receive 3 million newly issued shares in return.

Suppose you sold the 1 million shares to the angel investor for $500,000. What was the post-money valuation of your shares immediately following the angel investor's investment?
A. 1.0$ million
B. 500,000$
C. 2.5$ million
D. 2.0$ million

Answer 1

A. $1.0 million

Step-by-step explanation:

total shares outstanding immediately after you sold stocks to the angel investors = 2 million (your own) + 1 million (angel investors) = 3 million

the angel investors paid $500,000 for 1 million stocks, that means that your 2 million shares are worth twice as much = $500,000 x 2 = $1,000,000

the company's total value = $1,000,000 + $500,000 = $1,500,000