SUN Consulting was established by three entrepreneurs in late 2017. Each founder contributed $2000, at a price of $0.001 per share (i.e. the business, at formation, had a total of 6 million common shares). In January 2018, the founders invited an angel investor, who injected $100,000 in exchange of 0.6 million new common shares in the business.
Business has since been booming, and SUN Consulting later hired three board members, a new CEO, and some other executives. Just prior to the next round of funding (Series A), board members as well as all senior executives were collectively granted 2 million new common shares.
Suppose it is now beginning of 2021. Venture Kings Limited Partnership is interested in investing in SUN Consulting (i.e. Series A funding). Pre-money valuation for the business is $4 million, and Venture Kings has decided to invest $1.8 million.
Based on the information provided:
[1.a] How many new shares need to be created for Venture Kings Limited Partnership in Series A funding round?
[1.b] After Series-A funding round has been completed, what will be Venture Kings’ percentage ownership stake in SUN Consulting? Will the three founders still have majority-control of their business (i.e. > 50%)? Show your calculations, and briefly explain your calculation process.
Sample Solution
