As an owner of the new venture, you are looking for an investment of $6 million to acquire a patent on your new technology. There is an investor that offers three options: $6 million for 3 million shares of common stock $6 million for 1.7 million shares of preferred stock that is convertible to common stock on a 1-to-1 basis $6 million for 1.5 million shares of preferred stock that is convertible to common stock with additional warrants to acquire additional 1.5 million shares for a nominal price. The warrant can be exercised if the venture fails to achieve a forecasted revenue in three years. Regardless of the option selected, you will still own 3 million shares of common stock. Based on the information above: Calculate pre- and post-money valuations for each of aforementioned scenarios As the owner, which options would you choose and why (specifically, what criteria would you use for your judgement)?
As an owner of the new venture, you are looking for an investment of $6 million to acquire a patent on your new technology. There is an investor that offers three options: $6 million for 3 million shares of common stock $6 million for 1.7 million shares of preferred stock that is convertible to common stock on a 1-to-1 basis $6 million for 1.5 million shares of preferred stock that is convertible to common stock with additional warrants to acquire additional 1.5 million shares for a nominal price. The warrant can be exercised if the venture fails to achieve a forecasted revenue in three years. Regardless of the option selected, you will still own 3 million shares of common stock. Based on the information above: Calculate pre- and post-money valuations for each of aforementioned scenarios As the owner, which options would you choose and why (specifically, what criteria would you use for your judgement)?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:As an owner of the new venture, you are looking for an investment of $6 million to acquire a patent on your new
technology. There is an investor that offers three options:
$6 million for 3 million shares of common stock
$6 million for 1.7 million shares of preferred stock that is convertible to common stock on a 1-to-1 basis
$6 million for 1.5 million shares of preferred stock that is convertible to common stock with additional warrants to acquire
additional 1.5 million shares for a nominal price. The warrant can be exercised if the venture fails to achieve a forecasted
revenue in three years.
Regardless of the option selected, you will still own 3 million shares of common stock. Based on the information above:
Calculate pre- and post-money valuations for each of aforementioned scenarios
As the owner, which options would you choose and why (specifically, what criteria would you use for your judgement)?
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