# Emergic: Rajesh Jain's Blog

#### April 21st, 2010 · 5 Comments

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.

Tags: Uncategorized

### 5 responses so far ↓

• 1 talll.com // Apr 21, 2010 at 7:48 am

Rajesh, the question you had asked was:

“What is the effective (blended) pre-money valuation of the company AFTER the \$13 million has been invested”

so AFTER the 13 million is invested the value would be \$18.9 M. (I had left this answer on ur earlier post as well)

• 2 Sudhir Chukkapalli // Apr 21, 2010 at 8:53 am

There is a small mistake in After Round 2 calculation.

• 3 Raymond Chenon // Apr 21, 2010 at 11:40 am

Certainly one mistake after Round 2. After each investment the VC must own more share. Should be between 50%-69%. Maybe 62.5 %

At least I know what blended pre-money means.

• 4 Raymon Chenon // Apr 21, 2010 at 1:48 pm

From yesterday question “Even VCs who are supposed to know investing got the calculation wrong in this case!”. Not only 🙂

• 5 Curious Mind // Apr 23, 2010 at 9:29 am

i guess.. calculating the promoter’s dilution is much simpler..

Tranche 1 : 50% investor and 50% promoter

Tranche 2 : 25% further dilution of promoter i.e. 25% of 50% i.e. 12.5% so balance 37.5%

Tranche 3: 16.7% further dilution of promoter i.e. 16.7% of 37.5 % i.e. 6.2625% so balance 31.2375% with promoter which means 68.7625% with VC