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    The mechanics of raising equity capital

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    Starware software was founded last year to develop software for gaming applications. The founder initially invested $800,000 and received 8 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 million and wants to own 20% of the company after the invested is completed.

    a.How many shares must the venture capitalist receive to end up with 20% of the company? What is the implied price per share of this funding round?

    b.What will the value of the whole firm be after this investment (the post-money valuation)?

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    Question A
    Let x the additional shares to be issued and the shres to ...

    Solution Summary

    The mechanics of raising equity capital is determined. The value of the whole firm after the investment is determined.