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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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Solution Summary

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

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

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