Reference no: EM131124277
Ratchets.com anticipates that it will need $15 million in venture capital to achieve a terminal value of $300 million in five years.
A. Assuming it is a seed-stage firm with no existing investors, what annualized return is embedded in its anticipation?
B. Suppose the founder wants to have a venture investor inject $15 million in three rounds of $5 million at times 0, 1, and 2 with a time 5 exit value of $300 million. If the founder anticipates returns of 70 percent, 50 percent, and 30 percent for rounds 1, 2, and 3, respectively, what percent of ownership is sold during the first round? During the second round? During the third round? What is the founder's Year 5 ownership percentage?
C. Assuming the founder will have 10,000 shares, how many shares will be issued in rounds 1, 2, and 3 (at times 0, 1, and 2)?
D. What is the second-round share price derived from the answers in Parts B and C?
E. How does the answer to Part D change if 10 percent of total equity in Year 5 is set aside for incentive compensation? How many total shares are outstanding (including incentive shares) by Year 5?
|
What are the related premoney and post-money valuations
: Suppose you are considering a venture conducting a current financing round involving an issue of 100,000 new shares at $3. The existing number of shares outstanding is 200,000. What are the related premoney and post-money valuations?
|
|
Interpret your results as they relate to the founders owner
: Rework the two-stage example of Section 10.5 with first- and second-round required returns of 55 percent and 40 percent (instead of the original 50 percent and 25 percent). Interpret your results as they relate to the founders’ ownership and the feas..
|
|
Rework the two-stage example of section 10
: Rework the two-stage example of Section 10.5 with 1,000,000 initial founders’ shares (instead of the original 2,000,000 shares). What changes?
|
|
What is the equally weighted average annualized return
: Assuming no intermediate flows before the terminal payoff, verify that the associated annualized rates are −42.55 percent, 8.45 percent, and 19.35 percent. What is the equally weighted average annualized return? Does it make sense to use this as a si..
|
|
What annualized return is embedded in its anticipation
: Assuming it is a seed-stage firm with no existing investors, what annualized return is embedded in its anticipation? Suppose the founder wants to have a venture investor inject $15 million in three rounds of $5 million at times 0, 1, and 2 with a ti..
|
|
Estimate the value of the new venture at the end of year 5
: Estimate the value of the new venture at the end of Year 5. Show your answer using both the direct comparison method and the direct capitalization method. What assumption are you making when using the current price-to-earning relationship for the com..
|
|
Determine the present value of the venture at the endof year
: Estimate the terminal value of the venture at the end of Year 5 if the discount rate at that time is 20 percent. Determine the present value of the venture at the end of Year 0 if the venture investor wants a 40 percent annual rate of return on the i..
|
|
Calculate the discount rate consistent with a cap rate
: Calculate the discount rate consistent with a cap rate of 12 percent and a growth rate of 6 percent. Show how your answer would change if the cap rate dropped to 10 percent while the growth rate declined to 5 percent.
|
|
What ingredients would you need to conduct a vcsc valuation
: From the Headlines—Excaliard: What ingredients would you need to conduct a VCSC valuation for Excaliard? Does your calculation suggest that a $15.5 million Series A round is reasonable?
|