Question

Sarah Clemmons and Ben Adamson formed an LLC and named it Best Manufacturing, Inc. in 2012 giving each founder a percentage of the company based upon their respective financial contribution. The LLC had articles of incorporation that authorized 50,000,000 shares of stock. Sarah contributed $750,000 and Ben contributed $500,000 in initial capitalization and issued the respective number of shares of stock to each founder at a price of $1.00 per share to start company operations. The LLC is a private company and its stock does not trade on a public market. Over the next 3 years Best Manufacturing grew to about $1,500,000 in total sales and had grown the staff of 7 employees. Their operation generated about 20% profitability on sales. Sarah and Ben decided to attract additional investment into the business. They determined that if they could raise another $750,000 initially with a follow-up investment of $2,000,000 the company could easily grow their revenues to $8,000,000 in sales with the added capital investments making their profit 5 times what it is now. In 2015 Sarah and Ben contracted with a consultant to help find them enough angel investors to contribute the desired $750,000. Start-up Consultants, Inc. found 4 angel investors interested in investing in Best Manufacturing according to the following splits:

Angel Investor 1 - $150,000

Angel Investor 2 - $150,000

Angel Investor 3 - $200,000

Angel Investor 4 - $250,000

Start-up Consultant's Inc. advised Sarah and Ben that the investors would need a 40% interest in the company in exchange for the total investment of $750,000. Sarah and Ben also wanted to set aside a 10% portion of the all issued stock for a company wide stock options plan that could be used for incentivizing employees. The investors agreed to this additional provision.

Sarah and Ben agreed to the terms and the company issued the appropriate new shares of stock.

1. What was total number of shares of stock issued when Sarah and Ben started the company?
2. What was the company's initial valuation?
3. Calculate the pre-money valuation of the company before the investments from the angel investors.
4. What is the stock share price before the issuance of the additional 1,000,000 shares of stock to the angel investors.
5. What is the stock share price after the issuance of the additional 1,000,000 shares of stock.
6. Prepare a capitalization table showing the date, the amount invested, the number of shares of stock issued to each owner, the percentage ownership of the company, and the stock price. Total the table and show the cumulative number of shares issued and a total market capitalization of the company.

Answer 1

Anerr the otal no of hanes of atock ?ssued wher the arah and Ben tarted the Company foto existence The Company Came be This One hould Hene, have the total Cap?tal ?nveted b he hoo shaneholdens o be- 150,00 500,000- we 1,60000 no oP Ahanes of Atock ho each Pounden ata PRce of1.00 Pern ahane 1,950 000 the no. oP hane be - 1 he Compans ?nha valuahon, at this ?ncepton stage his one s alo buiness ai well the tock thene no gorng on Sioce f ineted in he company the valuahon of he Company hch oould be 1,260,000 te pe-mony valuakon of he Company befe the uestments Pron the angel uestors

one s a le aralykcal The total argel nuestment ? this coe, ?s 7,60,000 and he Povestors bel?eve, that ths Iuestment hould reprexent a aol. nterest n he Company Thi that he remairg 6ot shat the means Centyvalued at Hs can be expreued a follows Company Matherrakially R60,000 O40 1835000 xo'60 {\ 26000 .he ualue of the Company to be \,26000 he stock ahane Pce befove the Pssuance of the addeonal 000 000 Ahares oP sfock to he argel nueshor The no of Ahane n b be1260p00, the compeny the aboue thrd queton hele n we had this value to be ,126000 per shane ualue of the to ck be- ,196,000 260,000

= ५०१०. The Stock hane pice aeten the suane of the addaonal 000, 000 Ahanes of tock. lene we haue the Fotal nvetment to be 7 60 ,000 Cohple the Pace value of hese hanes o be 00 The tota! no oP hanes to be 9ssued be of F50 ,000 1 new hanes 0,000 ere 9Puen that the vestor S u be a Ao'í ^hane o a Plen this ssue.h, Hhe the Company of the company new value LOauld be 50,000 760000 O 40 185000 APten sisue the total no of hanes wt be = 960,000 + F60,000 - 9,000, 000 ^hanes 35,000 2000,000 Pen Ahane value to be 2 ০.৭375।