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Implied Price Per Share and Post-Money Valuation

Delta software was founded last year to develop software for gaming applications. The founder initially invested $800,000 and received 8 million shares of stock. Delta 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 investment 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)?

Solution Preview

Part A:

To own 20% of the company, the investor must own 20% of the stock. The company has issued 8 million shares of stock. Multiply the 20% (or 0.20) by the number of ...

Solution Summary

This soluton explains how to calculate the implied price-per-share of a specific funding round for a company. Also, this solution explains how to calculate post money valuation after this funding round occurs.

$2.19