ABC Company 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? Make sure to show all the formulas and calculations in addition to any assumption needed.
ABC Company 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?
Make sure to show all the formulas and calculations in addition to any assumption needed.
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