FRM Part I · FRM Exam Part I · Fund Management
A venture capital firm invests $5 million in a start-up for a 20% stake. What is the post-money valuation of the start-up?
The post-money valuation is $25 million. It equals the $5 million investment divided by the 20% ownership stake obtained. The pre-money valuation is the post-money value minus the new money, which is $20 million, so the $20 million answer confuses the two measures.
- A$20 million
- B$25 millionCorrect
- C$30 million
- D$5 million
Explanation
Post-money valuation = investment / ownership percentage = 5/0.20 = $25 million. The pre-money valuation is 25 - 5 = $20 million, which is the key distractor. $30 million wrongly adds the investment to the post-money value.
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