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Economics Common Stock Issued to Brad & Pre Money Valuation Questions

Economics Common Stock Issued to Brad & Pre Money Valuation Questions

ANSWER

Problem 1: Calculating Brad’s Ownership Percentage

To calculate Brad’s ownership percentage after his angel investment, we can use the following formula:

Ownership Percentage = (Investment Amount / Post-money Valuation) * 100

Given:

  • Angel investment: $1,000,000
  • Pre-money valuation: $9,000,000

Post-money valuation = Pre-money valuation + Angel investment = $9,000,000 + $1,000,000 = $10,000,000

Ownership Percentage = ($1,000,000 / $10,000,000) * 100 = 10%

Therefore, Brad owned 10% of company ABC immediately after his angel investment.

Problem 2: IPO Questions

  1. The total number of shares offered to the public in the initial public offering is the sum of Class A common stock offered by Snap Inc. and the Class A common stock offered by the selling stockholders:

Total shares offered = 145,000,000 shares + 55,000,000 shares = 200,000,000 shares

  1. The total dollar amount that Snap Inc. raised in the initial public offering can be calculated by multiplying the Price to Public by the total number of shares offered by Snap Inc.:

Total raised by Snap Inc. = Price to Public * Class A common stock offered by Snap Inc. Total raised by Snap Inc. = $17.00 * 145,000,000 shares = $2,465,000,000

  1. The total costs of underwriting discounts and commission are given as $0.425 per share. We can calculate the total costs by multiplying this value by the total number of shares offered:

Total underwriting costs = Underwriting Discounts and Commission * Total shares offered Total underwriting costs = $0.425 * 200,000,000 shares = $85,000,000

  1. The proceeds to Snap Inc. after considering all underwriting discounts and commission can be calculated by subtracting the total underwriting costs from the total amount raised by Snap Inc.:

Proceeds to Snap Inc. = Total raised by Snap Inc. – Total underwriting costs Proceeds to Snap Inc. = $2,465,000,000 – $85,000,000 = $2,380,000,000

  1. The proceeds to the selling stockholders after considering all underwriting discounts and commission is the same as the proceeds to Snap Inc., as indicated in the given information:

Proceeds to Selling Stockholders = Proceeds to Snap Inc. Proceeds to Selling Stockholders = $2,380,000,000

Therefore:

  1. Total shares offered to the public: 200,000,000 shares
  2. Total raised by Snap Inc.: $2,465,000,000
  3. Total costs of underwriting discounts and commission: $85,000,000
  4. Proceeds to Snap Inc.: $2,380,000,000
  5. Proceeds to selling stockholders: $2,380,000,000

Economics Common Stock Issued to Brad & Pre Money Valuation Questions

QUESTION

Description

PROBLEM 1

In July 2017, the startup company ABC raised $1 million ($1,000,000) angel funding from investor Brad. Company ABC’s sole founder and CEO, Greg, offered Brad the “same kind of stock that I own – common stock.” Brad was happy to receive common stock and a $9 million ($9,000,000) pre-money valuation for his investment.  What percentage of the company ABC did Brad own in July 2017 immediately after his angel investment?

PROBLEM 2

The Snap Inc., went public (IPO) on March 2rd, 2017.  The chart below was based on its SEC Form 424B4 filing. Read the chart and answer questions:

IPO Status                                                                                             Priced

Symbol                                                                                                   SNAP

Exchange                                                                                               NYSE

Price to Public                                                                                       $17.00

Underwriting Discounts and Commission                                        $0.425

Proceeds to Snap Inc.                                                                          $16.575

Proceeds to Selling Stockholders                                                       $16.575

Class A common stock offered by Snap Inc.                                     145,000,000 shares

Class A common stock offered by the selling stockholders            55,000,000 shares
1. What’s the total number of shares offered to public in the initial public offering?

2. What’s the total dollar amount that Snap has raised in the initial public offering?

3. What’s the total costs of underwriting discounts and commission?

4. In the initial public offering, how much was proceeds to Snap Inc. after considering all underwriting discounts and commission?

5. In the initial public offering, how much was proceeds to the selling stockholders after considering all underwriting discounts and commission?

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