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(a) Differentiate angel investor from venture capital firms
(a) Differentiate angel investor from venture capital firms. (4 marks)
(b) You founded your own company two years ago. Initially you contributed RM200,000 of your own money and in return received 3 million shares of stock. Since then, you have sold an additional 1,000,000 shares to angel investors. Now you are considering raising even more capital from a venture capitalist (VC). This VC would invest RM12 million and would receive 6 million newly issued shares.
i. Calculate the post money valuation. (4 marks)
ii. Find the percentage of the firm that VC end up owning. (3 marks)
iii. Calculate the percentage of the firm you owned. (3 marks) iv. Find the value of your share. (2 marks)
(c) The firm you founded currently has 10 million shares of which you own 6 million. You are considering an IPO where you would sell 3 million shares for RM30 each.
i. If all shares sold are primary shares, find the amount that the firm raise. (2 marks)
ii. Calculate your percentage ownership of the firm after the IPO. (2 marks)
Expert Solution
Answer (a):
Difference between Angel Investors and Venture Capital Firms :
1) Structure:
Angel investors mostly are individuals who invest their funds in a startup. They are rich individuals who choose to invest in high-potential companies in exchange for an equity stake.
On the other hand Venture capital firms are a group of professional investors. Their capital will come from individuals, corporations, pension funds and foundations.
2) Amount of Investments:
Generally the amount of money that angel investors invest is far less than venture capital firms. Venture capital firms has huge capital base and they generally invest in large amounts.
3) Investment Stage:
Angel investors mostly invests in startups. On the other hand venture capital firms invest in startups as well as developed companies also. They invest mostly in the companies having good track record.
4) Roles and Responsibilities:
Both have different roles and responsibilities. Angel investors generally provide the finance only. They do not participate in strategic decision making of the company. On the other hand venture capital firms participate in strategic decision making and also they are mostly in touch with senior management all the time.
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