Valuation Answer

The correct answer to yesterday’s question is $5.84 million. Here is the calculation:

  • Tranche 1: VC gets 50% for $5 million
  • Tranche 2: VC gets 25% for $4 million
  • Tranche 3: VC gets 16.7% for $4 million

So, after Round 1, the VC owns 50%.
After Round 2, the VC owns (50% * 25%) + 25% = 37.5% (50%*25%) + 50% = 62.5% [PS: Apologies for this error.]
After Round 3, the VC owns (62.5% * 83.7%) + 16.7 = 69%

So, the VC has invested $13 million for a 69% stake over three tranches. Therefore, the blended pre-money (the value of the other 31%) is $5.84 million.