Investments
| Investor | Entry | Investment | Required return (discount rate) |
|---|---|---|---|
| Angel | Year 0 | 500K | 50% |
| VC1 | Year 2 | 750K | 40% |
| VC2 | Year 4 | 1M | 25% |
Net profits in year 5: 375K
Valuation/profits = 20
Valuation = 20 profits = 20 * 375K = 7.5 M
The expected valuation in 5 years is 7.5M
Angle Round (Year 0, 500K, 50%)
Q: What is the valuation today?
A: 7.5M/(1+50%)^5 = 987654
—>
Angle owns 500k/987654 = 50.6%
Founders own 49.4%
Shares
100,000 shares already belong to founders
100000/(100000+x) = 49.4%
—>
x = 102,532 angle shares
102532+100000 = 202532 total # of shares
Pre-money & post-money (angel round)
post-money evaluation
987k
pre-money evaluation
987k-500k = 487k
Price/share = post money / # of shares
= 987654/202532 = 4.88
VC1 (Year 2, 750K, 40%)
Q: The future value of a 750K investment in year 5
A: 750K * (1+40%)^3 = 2.06M
—>
VC1 owns 2.06M/7.5M = 27.4%
Angle and Founders own 72.6%
Shares
202532 total # of shares in angle round
202532/(202532+x) = 72.6%
—>
x = 76591 vc1 shares
202532+76591 = 279123 total # of shares
Post-money (vc1 round)
post-money evaluation
7.5M / (1+40)^3 = 2.73M
pre-money evaluation
2.73M-750k = 1.98M
Price/share = post money / # of shares
= 2.73M/279123 = 9.79
Diluted
VC1 owns 27.4%
Founders own 100000/279123 = 35.8%
Angles own 102532/279123 = 36.7%
VC2 (Year 4, 1M, 25%)
Q: The future value of a 1M investment in year 5
A: 1M * (1+25%)^1 = 1.25M
—>
VC2 owns 1.25/7.5M = 16.7%
Angle and Founders own 83.3%
Shares
279123 total # of shares in vc1 round
279123/(279123+x) = 83.3%
—>
x = 55959 vc2 shares
279123+55959 = 335082 total # of shares
Post-money (vc1 round)
post-money evaluation
7.5M / (1+25)^1 = 6M
pre-money evaluation
6M-1M = 5M
Price/share = post money / # of shares
= 5M/335082 = 17.9
Diluted
VC2 owns 16.7%
Founders own 100000/335082 = 29.8%
Angles own 102532/335082 = 30.6%
VC1 owns 76591/335082 = 22.9%
Dilution (50% discount rate)
| Round | Year | Invest | Post-money Evaluation | Founders | Angle | VC1 | VC2 | Price/share |
|---|---|---|---|---|---|---|---|---|
| Angel | Year 0 | 500K | 988k | 49.4% | 50.6% | / | / | 4.88 |
| VC1 | Year 2 | 750K | 2.7M | 35.8% | 36.7% | 27.4% | / | 9.79 |
| VC2 | Year 4 | 1M | 6M | 29.8% | 30.6% | 22.9% | 16.7% | 17.9 |
| Exit | Year 5 | / | 7.5M | 2.24M | 2.30M | 1.72M | 1.25M | |
| 4.6x | 2.3x | 1.25x |