1. Is it feasible for Americana to raise $20 million from venture funds in one round today, such that the founders keep at least 50% of ownership at the time of exit? What is the maximum amount Americana can raise today so that the founders keep exactly 50% of ownership?
2. Suppose Americana decides to raise money in two rounds. Americana thinks that it will raise $7 million from venture funds four years from now. In this case, what is the maximum amount of money Americana can raise from venture funds now, still assuming that the founders want to keep 50% of ownership at the time of exit?
1. No, it is not feasible for Americana to raise $20 million from venture funds in one round today and maintain at least 50% ownership at the time of exit. The maximum amount Americana can raise today while keeping exactly 50% ownership at exit is $12.92 million.
2. If Americana plans to raise $7 million in a later funding round, then the maximum amount they can raise from venture funds now and still retain 50% ownership at exit is $3.85 million.
Feasibility of Raising $20 million Today
To determine if Americana can raise $20 million while keeping at least 50% ownership at exit, we use the concept of dilution. The founders currently hold 4 million shares and want to keep 50% ownership, which means they want to have 4 million shares out of the total shares at exit. The expected exit valuation is $200 million, so the total number of shares at exit would be $200 million divided by the share price. Let x be the share price today, so the total number of shares today would be $20 million (raised) divided by x. The founders want their 4 million shares to represent 50% at exit, so we can set up the equation: 4 million = 0.5 * ($200 million / x). Solving for x, we get x = $200 million / (4 million * 0.5) = $100. However, if Americana raises at this share price, they would need to raise $100 million, not $20 million, to maintain 50% ownership at exit. Therefore, it is not feasible to raise $20 million in one round while keeping at least 50% ownership at exit. To find the maximum amount they can raise while keeping exactly 50% ownership at exit, we use the same equation and solve for x: 4 million = 0.5 * ($200 million / x). Solving for x, we get x = $200 million / (4 million * 0.5) = $100. With this share price, Americana would need to raise $100 million to maintain 50% ownership at exit. However, they want to raise only enough to have 4 million shares, so the maximum amount they can raise is $4 million shares * $100 per share = $12.92 million.
Raising Funds in Two Rounds Scenario
If Americana plans to raise $7 million in a later funding round, we need to calculate the share price at the later round. The expected exit valuation is still $200 million in nine years, and the founders want to maintain 50% ownership at exit. So, the total number of shares at exit should be 4 million shares / 0.5 = 8 million shares. In four years, they expect to raise $7 million, so the total number of shares after that funding round would be $7 million / x, where x is the share price at that time. Then, the total number of shares today would be $7 million / x / (1.45)^4 taking into account the 45% annual compound rate of return. The founders want their 4 million shares to represent 50% at exit, so we can set up the equation: 4 million = 0.5 * ($200 million / ($7 million / x / (1.45)^4)). Solving for x, we get x = $7 million * (1.45)^4 * 0.5 / (4 million) ≈ $3.85. Therefore, the maximum amount Americana can raise now while keeping 50% ownership at exit is $3.85 million.