Question

You founded your own firm three years ago. You initially contributed $200,000 of your own money and in return you received 3 million shares of stock. Since then, you have sold an additional 2 million shares of stock to angel investors. You are now considering raising capital from a venture capital firm. This venture capital firm would invest $4 million and would receive 2 million newly issued shares in return. Assuming that this is the venture capitalist's first investment in your firm, what percentage of the firm will the venture capitalist own?

Answer 1

Answer:

28.57%

Explanation:

currently total shares outstanding are:

• you own 3 million shares
• angel investors own 2 million shares
• total shares outstanding 5 million

if the corporation issues 2 million shares more, then the total shares outstanding would increase to 7 million.

The venture capitalist's investment in your firm would represent 2/7 = 28.57% of the firm's total shares.