An early stage venture capital investor invests $2 million in a data analytics company at a $6 million pre-money valuation. The company is later acquired for $10 million (without raising additional funds). Considering what you've learned about early stage venture capital and only the details of the investment available in this question, which of the following are correct? (select all that apply)

Question

BlackTom AI · Accepted Answer

The question presents an early-stage venture investment scenario and asks which statements are correct based on the given details. There are no answer options provided in the answer_options field to evaluate in the usual way, so I will treat the two statements listed in the answer field as the candidate options to analyze.

Option 1: "the venture capital firm owns 25% of the company after the $2 million investment."
- Calculation framework: post-money valuation = pre-money valuation + new investment. Here, pre-money = $6 million and new investment = $2 million, so post-money = $8 million.
- Ownership percentage for the investor = investment / post-money = $2 million / $8 million = 0.25, i.e., 25%.
- Implication: after the investment, the VC would own a quarter of the company based on the post-money valuation. This aligns with standard venture capital math where ownership is determined by the ratio of the new investment to the post-money valuation.
- Conclusion for this option: Correct, given the stated numbers and the typical post-money equity calculation.

Option 2: "the pre-money valuation reflects the agreed-upon value of the company before investment."
- Definition check: pre-money valuation is indeed the valuation of the company immediately before the new investment is added, representing the company’s value without the new funds.
- Contextual consistency: this means the pre-money reflects what the company is deemed worth prior to the financing round, and the investment then converts into ownership based on the post-money valuation.
- Conclusion for this option: Correct, because it accurately describes the meaning of pre-money valuation in this investment scenario.

Note on the provided options: The question text indicates there are multiple answers to select, and the two statements listed correspond to standard, correct interpretations of the given investment structure. Since the answer_options field is empty, I treated the two stated options as the items to evaluate and explained why each aligns with fundamental concepts of pre-money and post-money calculations in venture financing.

ES 212 003 FA 2025 Quiz 6

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