The table below shows the outcomes of four scenarios that feature investments by Angels and VCs, based on US and Canadian stats (using the same four dilution scenarios shown on page 73).
Exit Value
$5M
$20M
Scenario A: One-and-Done Angels Invest $500K, Pre-Money Value $1.5M Angels Own 25% Angels’ Return Multiple Scenario B: One VC Round VCs Invest $4M on Pre-Money Value $6M Angels Diluted Down to 15% Angels’ Return Multiple Scenario C: Series B Round Series B Pre-IPO Invests $15M on Pre-Money Value $30M Angels Diluted Down to 10% Angels’ Return Multiple Scenario D: Pre-IPO Series C Round Series C Pre-IPO Invests $40M on Pre-Money Value $100M Angels Diluted Down to 6.67% Angels’ Return Multiple
$50M
$100M
$250M
$1.25M 2.5X
$5M 10X
$12.5M 25X
$25M 50X
$62.5M 125X
? ?
$3M 6X
$7.5M 15X
$15M 30X
$37.5M 75X
$0 0
? ?
$5M 10X
$10M 20X
$25M 50X
$0 0
$0 0
$0 0
? ?
$16.7M 33.3X
Scenario A: One-and-Done. Angels invest $500,000 in a company with a pre- money valuation of $1.5 million. They own 25% of the post-money value of $2 million. The company achieves an exit event (using the stats from the figure in the previous section) with no further investment required. What are the investors’ multiples for different exits and dilution scenarios? As shown in the chart, if they get an early exit of $5 million, that gives them a 2.5X multiple. Not bad if less than four years to the exit. A $5 million exit returns 25X and $25 million exit returns a whopping 125X – a real unicorn! Chances are rare indeed, one might even say mythical, that a company capitalized with less than $1 million could attain such an exit.
Effect of Dilution by Future Investment Rounds
Scenario A
Scenario B
Scenario C Scenario D
Pre-Money Valuation
$1.5M
$6M
$30M
$90M
Angels Invest
$0.5M
VC-A Invests
$4M
VC-B Invests
$15M
$45M
Post-Money Valuation
$2M
$10M
$45M
$135M
VC-A Owns
40%
VC-B Owns
33%
VC-C Owns
33%
Angels Own
25%
15%
10%
6.7%
96 A Practical Guide to Angel Investing
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