Pipestein Corporation receives 1 round of financing equal to $12M at a $15M pre-money valuation. The...
Pipestein Corporation receives 1 round of financing equal to $12M at a $15M pre-money valuation. The VC receives participating preferred stock with a 1x liquidation preference and 2.5x cap. If the company is acquired for $100M, how much will the VC receive?
Homework Answers
Pre-Money Valuation = $12m
VC Funding in Round 1 $15m
Post-Money Valuation = Pre-Money Valuation + External Funding
= $12m + $15m
= $27m
VC Ownership % = VC Funding/Post-Money Valuation
= $15m/$27m
= 55%
Amount to be received by VC = Liquidation Preference + Participating Preference
= 1* Amount Invested + (Liquidation Proceeds - Liquidation Preference)*% of ownership by VC
= 1* $15m + ($100m -1*$15m)*55%
= $15m + $85m*55%
Amount to be received by VC = $61.75m
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