Question

[21] 2. Suppose Michigan Angels Group has already invested $3M in MotorCity Co. in return for 1M shares, resulting in the founders owning 70% of their company. In 2 years, additional funding is needed in the amount of $1M which is supplied by Mobility Ventures and this round is priced at $2 per share. Assume no ratchet provision.

a) What is the number of shares of founders after the angel round?

b) What is the total number of outstanding shares in MotorCity (owned by founders and angels)?

c) What is proportion of shares owned by Mobility Ventures after the new (second) round?

d) What is the proportion of shares owned by Michigan Angels after the new round?

e) What is proportion of shares owned by founders after the new round?

Assuming a full ratchet provision is in the term sheet, answer d and e.

g) What is the ownership of Michigan Angels?

h) What is ownership of Mobility Ventures?

Answer 1

Solution to a

After the angel round, founders own 70% of the company. Hence, Michigan Angel's Group own 30%, which is 1 million shares.

Hence, founders own: 1million * 70%/30% = 2.33 million

Solution to b

The total number of share owned by founders and angels = 1 million + 2.33 million = 3.33 million

Solution to c

Mobility Ventures Invested $1 million in MotorCity, at $2 per share. Hence, they held $1million/2 = 500,000 shares. Now, the total number of shares of MotorCity = 3.33 million + 500,000 = 3.83 million

Solution to d

Michigan Angel owns 1 million shares of MotorCity. After the second round, there are 3.83 million shares of the company. That is (1million/ 3.83 million) * 100 or 26.09%. Michigan Angels owns 26.09% of the company after the second round of funding