Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 23, Problem 3P
a.
Summary Introduction
To determine: The number of shares the venture capitalist receives to end up with 20% of the company and the implied price per share.
Introduction: Venture capitalists are investors who provide the capital to start-up business firms or give their support to small companies to expand their business.
b.
Summary Introduction
To determine: The post-money value of the whole firm after investment.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Starware Software was founded last year to develop software for gaming applications. The founder initially invested
$900,000
and received
8
million shares of stock. Starware now needs to raise a second round ofβΒ capital, and it has identified a venture capitalist who is interested in investing. This venture capitalist will invest
$1.40
million and wants to own
12%
of the company after the investment is completed.
a. How many shares must the venture capitalist receive to end up with
12%
of theβΒ company? What is the implied price per share of this fundingβΒ round?
b. What will the value of the whole firm be after this investmentβΒ (the post-moneyβΒ valuation)?
Starware Software was founded last year to develop software for gaming applications. The founder initially invested $900,000Β and receivedΒ 10Β million shares of stock. Starware now needs to raise a second round of capital, and it has identified a venture capitalist who is interested in investing. This venture capitalist will invest $1.20Β million and wants to ownΒ 39%Β of the company after the investment is completed. a.Β How many shares must the venture capitalist receive to end up withΒ 39%Β of the company? What is the implied price per share of this funding round? b.Β What will the value of the whole firm be after this investmentΒ (the post-money valuation)?
Ethelbert.com is a young software company owned by two entrepreneurs. It currently needs to raise $1,346,400 to support its expansion plans. A venture capitalist is prepared to provide the cash in return for a 40% holding in the company. Under the plans for the investment, the VC will hold 20,400 shares in the company and the two entrepreneurs will have combined holdings of 30,600 shares.
Β
a.Β What is the total after-the-money valuation of the firm?Β (Enter your answer in dollars not millions.)
Β
b.Β What value is the venture capitalist placing on each share?
Chapter 23 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Ch. 23.1 - Prob. 1CCCh. 23.1 - Prob. 2CCCh. 23.2 - Prob. 1CCCh. 23.2 - Prob. 2CCCh. 23.3 - List and discuss four characteristics about IPOs...Ch. 23.3 - Prob. 2CCCh. 23.4 - Prob. 1CCCh. 23.4 - What is the average stock price reaction to an...Ch. 23 - Prob. 1PCh. 23 - What are the advantages and the disadvantages to a...
Ch. 23 - Prob. 3PCh. 23 - Suppose venture capital firm GSB partners raised...Ch. 23 - Prob. 5PCh. 23 - Prob. 6PCh. 23 - Prob. 7PCh. 23 - Prob. 8PCh. 23 - Prob. 9PCh. 23 - Prob. 10PCh. 23 - Prob. 11PCh. 23 - Prob. 12PCh. 23 - What is IPO underpricing? If you decide to try to...Ch. 23 - Prob. 14PCh. 23 - Prob. 15PCh. 23 - Prob. 16PCh. 23 - Prob. 17PCh. 23 - Prob. 18PCh. 23 - Prob. 19PCh. 23 - Prob. 20P
Knowledge Booster
Similar questions
- Benjamin Garciaβs start-up business is succeeding, but he needs $200,000 in additional funding to fund continued growth. Benjamin and an angel investor agree the business is worth $800,000 and the angel has agreed to invest the $200,000 that is needed. Benjamin presently owns all 40,000 shares in his business. What is a fair price per share and how many additional shares must Benjamin sell to the angel? Because the stock will be sold directly to an investor, there is no spread; the other flotation costs are insignificant.arrow_forwardThe founders of XMP GmbH have created a successful software as a service platform and are now looking for venture capital to accelerate the growth of the company. Currently, the company is entirely founder-owned and has 10,000.00 shares outstanding. But before they start fundraising, they want their employees to participate in the success story of their business. Therefore, the founders issue shares to an employee share option program (ESOP) so that the entire ESOP represents 20.00% of the ownership of the company. Shortly after that, they receive an offer from the venture capital firm A-Capital. A-Capital offers to invest 4,000,000.00 β¬ at a 16,000,000.00 β¬ pre-money valuation. What is the price per share (PPS) of the round and the total number of shares post-round? 1) The price per share (PPS) equals 1,640.00 β¬; the total number of shares post-round equals 18,750.00. 2) The price per share (PPS) equals 1,220.00 β¬; the total number of shares post-round equals 16,525.00. 3) Theβ¦arrow_forwardYou founded your firm with a contribution of $700,000, receiving 1,000,000 shares of stock. Since then, you sold 5,000,000 stocks to Angel Investors. Now you are considering raising more capital from a Venture Capitalist. They will invest $7,000,000 and would receive 5,000,000 newly issued shares. What is the post-money valuation? Express the terms of your answer completely and in strictly numerical terms. For example: If your answer is one million dollars, write: 1000000.arrow_forward
- a. John Thompson, CEO of NewVenture, Inc., seeks to raise $5 million in a private placement of equity in his early stage venture. Thompson conservatively projects net income of $5 million in year five and knows that comparable companies trade at a price earnings ratio of 20X. What share of the company will a venture capitalist require today if her required rate of return is 50% per annum? b. If the company has 1,000,000 shares outstanding before the private placement, how many shares should the venture capitalist purchase? What price per share should she agree to pay if her required rate of return is 50%? (Note: Assume investment is in standard preferred stock with no dividends and a conversion rate to common of 1:1) c. John feels that he may need as much as $12 million in total outside financing to launch his new product. If he seeks to raise the full amount in this round, how much of his company will he have to give up? What price per share will the venture capitalist agree to pay ifβ¦arrow_forwardA founder finds it difficult to raise capital so when he brings in his first outside investor, the investor obtains a full ratchet provision on his equity investor who invests $400000 for 400000 shares of the company. The founder holds 1000000 shares of the company. In the next round of financing the company, the company needs $550000 and the post-money value of the company is $1550000. What is the price per share expected to be in the next round of financing?arrow_forwardFishwick Enterprises has 201,500 shares outstanding, half of which are owned by Jennifer Fishwick and half by her cousin. The two cousins have decided to sell 101,000 shares in an IPO. Half of these shares would be issued by the company to raise new cash, and half would be shares that are currently held by Jennifer Fishwick. Suppose that the shares are sold at an issue price of $50 but rise to $80 by the end of the first dayβs trading. Suppose also that investors would have been prepared to buy the issue at $80. Β Β Β a. Percentage of ownership 20 % b. Stock value $4,020,000 Β c. Number of shares 63,125 Β d. Total wealth ?? million e. Cost of underpricing shares ?? millionarrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
- Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
- Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage Learning
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
Managerial Accounting: The Cornerstone of Busines...
Accounting
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Cengage Learning