If someone invested $60 million for a 25% stake in a company, what was the company’s implied pre-money valuation?

Question

BlackTom AI · Accepted Answer

Consider the investment scenario and what it implies about the post-money value.

Option by option analysis:

- $120 million: This would imply a post-money valuation of $120 million, which would mean an investment that represents a fraction of 60/120 = 0.5 (50%). That would only be true if the investor owned half the company after the investment, which contradicts the stated 25% stake. So this option does not align with the given ownership percentage.

- $180 million: If the company is valued at $180 million after the investment (post-money), the investor contributing $60 million would own 60/180 = 1/3 (33.3%), not 25%. Since 25% of post-money would require a post-money value of $60 million ÷ 0.25 = $240 million, this option is inconsistent with the 25% stake.

- $240 million: A post-money valuation of $240 million means the investor’s 60 million corresponds to 60/240 = 0.25 (25%). This matches the stated equity stake after the investment. The relationship between post-money value and investment confirms the implied stake is 25% for a $60 million investment.

- $300 million: If the post-money valuation were $300 million, the investor’s $60 million would represent 60/300 = 0.20 (20%), not 25%. This option therefore misaligns with the given ownership percentage and would not satisfy the stated deal terms.

- $360 million: A $360 million post-money valuation would imply ownership of 60/360 = 0.1667 (16.7%), which again does not match the specified 25% stake. This option is inconsistent with the deal description.

To connect to the core concept: the implied post-money valuation is found by dividing the investment by the ownership percentage, i.e., 60 million ÷ 0.25 = 240 million. Then the pre-money valuation is the post-money value minus the new investment, which would be 240 million − 60 million = 180 million. Understanding this separation helps verify consistency across options.

In summary, assess each option against two key checks: does the post-money valuation imply the correct ownership percentage for the $60 million investment, and does the derived pre-money value follow from subtracting the investment from the post-money value? This process highlights why certain figures violate the ownership condition while others align with it.

INNO 209 LEC A: IE:MGR... Midterm Exam

If someone invested $60 million for a 25% stake in a company, what was the company’s implied pre-money valuation?

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