M3 Venture capital Investment Quiz

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Q Your company raises a $3m A-round at a $7m pre-$ valuation, with investors receiving a basic liquidation preference. a. How much will common shareholders receive if the company sells for $50m? b. How much will common shareholders receive if the company sells for $5m? c. How much would the company have to sell for in order for common shareholders to receive a total of $5m? d. How much would the company have to sell for in order for common shareholders to receive a total of $50m?

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a. investor's Stake = 3/(7+3) = 30% Investor receives = 50m*30% = 15m So the common shareholder gets = 50-15 = $35m b. Investor receives = 5m*30% = 1.5m but investor would get $3m So the common shareholder gets = 5-3 = $2m c. Company would minimum sell for = 5+3=8 d. Company would minimum sell for = 50/(1-30%) = $71.43m

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