Reference no: EM133305464

Kevin, Stuart, and Bob Yellow have successfully invented a fully automated machine learning algorithm that would adaptively moderate content in a social network without human interference. The engine can be deployed to any social media platform that would comply with the Digital Services Act published in the Official Journal of the European Union. Such an invention would have saved social media companies millions in content moderation and the potential legal liability. To pursue their dream, they have established a new company Whisphi. A micro-fund from their university has granted them $500,000 to bootstrap their company without taking any equity. Kevin is the leader, and he gets 40%. Stuart and Bob each get 30%. They have registered the company in Hong Kong with 20,000,000 common shares.

Uncle IV, a first-time investor, like the idea very much and has decided to invest $1,500,000 through SAFE with a post-money valuation cap of $30,000,000 and a discount of 10% (SAFE Investor A). After nine months, Auntie III, a seasonal investor, invests $3,000,000 through SAFE with a post-money valuation cap of $27,000,00 and a discount of 5% (SAFE Investor B). Uncle IV feels he has overpaid and negotiates with Kevin, Stuart, and Bob to give him a pro-rata letter with a 10% discount on the subscription price in the subsequent formal financing round.

After twelve months, Whisphi is ready to launch its product. Kevin, Stuart, and Bob want to raise $20,000,000 for go-to-market and productization. They are willing to sell 15.0% of the Whisphi in exchange.

PolyTechno Venture Capital likes the timing of this capability. After reviewing its go-to-market strategy and discussion with a few potential customers, it has decided to issue a term sheet with a $15,000,000 investment for 15.0% of the company. An option pool of 10.0% is set aside to incentivize existing and new employees. Kevin, Stuart, and Bob are seriously considering the offer.

Question 1

What is post-money valuation marked by Polytechno Venture Capital (round to the nearest dollar)?

Question 2

How much is the option pool worth (round to the nearest dollar)?

Question 3

Suppose Polytechno Venture Capital is the only investor for Series A Preferred Shares financing round; what is the pre-money valuation (round to the nearest dollar)?

Question 4

Suppose Polytechno Venture Capital is the only investor for Series A Preferred Shares financing round; what is the value of Uncle IV's shares immediately after this round (round to the nearest dollar)?