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Question 1ebv is considering a 5m series a investment in

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Reference no: EM13346658

Question 1

EBV is considering a $5m Series A investment in Newco.

Possible Structure: EBV proposes to structure the investment as 5m shares of CP with FV of $5m, one-to one conversion to common, and no dividends.

Total Valuation Estimated from Newco: $30 million

Founder holds 15 million shares of Newco

a) LP Cost in this investment = 30-(10-5)= $25 million

b) Partial Valuation that EBV is buying in the Investment= (30/(15+5))*5= $7.5 million

c) Division of partial Into valuation, GP valuation= $5 million and the remaining is LP valuation which is $2.5 million

d) Yes EBV should make this investment

e) Founder holds 15 million shares of Newco

Question 2

a) Series A: $5m FV (and 2X liquidation preference) or converts to 5m shares;

Total Valuation: $50 million

Total Number of shares under this scenario: 15 million

Hence the investment will be =(50/20)*5= $12.5 million, hence this is the better option

Series B: $10m FV or converts to 8m shares;

Total Valuation: $50 million

Total Number of shares under this scenario: 18 million

Hence the investment will be =(50/18)*8= $11.3 million, hence this is the better option

b) Series C: $10m FV or converts to 5m shares;

Total Valuation: $50 million

Total Number of shares under this scenario: 15 million

Hence the investment will be =(50/15)*5= $16.66 million, hence this is the better option

Series D: $5m FV or converts to 10m shares.

Total Valuation: $50 million

Total Number of shares under this scenario: 20 million

Hence the investment will be =(50/20)*10= $25 million, hence this is the better option

Question 3

Series C: $10m FV or converts to 5m shares;

Total Valuation: $50 million

Total Number of shares under this scenario: 15 million

a) Hence the investment will be =(50/15)*5= $16.66 million, hence this is the better option

b) Series D: $5m FV or converts to 10m shares.

Total Valuation: $50 million

Total Number of shares under this scenario: 20 million

c) Hence the investment will be =(50/20)*10= $25 million, hence this is the better option

Question 4

Series A: CP ($5M FV) or converts to 5M shares of common.

Series B: CP ($10M FV with 2X liquidation preference) or converts to 5M shares of common.

a) Series C: RP+CS ($15M FV) with 5M shares of common.

Series D: CP ($30M FV) or converts to 5M shares of common.

Series E: RP+CS ($15M FV) with 5M shares of common.

Series A: $5m FV (and 2X liquidation preference) or converts to 5m shares;

Total Valuation: $50 million

Total Number of shares under this scenario: 15 million

Hence the investment will be =(50/20)*5= $12.5 million, hence this is the better option

b) Series B: $10m FV or converts to 8m shares;

Total Valuation: $50 million

Total Number of shares under this scenario: 18 million

Hence the investment will be =(50/18)*8= $11.3 million, hence this is the better option Series C: $10m FV or converts to 5m shares;

Total Valuation: $50 million

Total Number of shares under this scenario: 15 million

Hence the investment will be =(50/15)*5= $16.66 million, hence this is the better option

Series D: $5m FV or converts to 10m shares.

Total Valuation: $50 million

Total Number of shares under this scenario: 20 million

Hence the investment will be =(50/20)*10= $25 million, hence this is the better option

Question 5

Suppose that EBV makes a $6m Series A investment in Newco for 1mshares at $6 per share. One year later, Newco has fallen on hard times, and receives a$6m Series B financing from Talltree for 6m shares at $1 per share. The founders and thestock pool have claims on 3m shares of common stock.

a) Total Valuation Estimated from Newco: $30 million

Founder holds 15 million shares of Newco

b) LP Cost in this investment = 30-(10-5)= $25 million

Partial Valuation that EBV is buying in the Investment= (30/(15+5))*5= $7.5 million

c) Division of partial Into valuation, GP valuation= $5 million and the remaining is LP valuation which is $2.5 million

d) Yes EBV should make this investment

Question 6

If an investor believes that the total valuation of a company is higher than the post-transaction

valuation for the transaction, then he should invest: False

Question 7

Talltree is considering a $12m series B investment in Newco for CP with $12m FV or converting to 5m shares of common. The other investors are the founders, who have 10m shares of common, and the Series A investors, Talltree, who have CP with $6m FV that can convert to 5m shares of common.

a) Total Valuation Estimated from Newco: $30 million

Founder holds 15 million shares of Newco

b) LP Cost in this investment = 30-(10-5)= $25 million

c) Partial Valuation that Talltree is buying in the Investment= (30/(15+5))*5= $7.5 million

Division of partial Into valuation, GP valuation= $5 million and the remaining is LP valuation which is $2.5 million

Yes Talltress should make this investment.

Reference no: EM13346658

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