EBV is considering a $6M Series A investment in Newco. EBV proposes to structure the investment as 5M shares of convertible preferred stock. The founder and employees of Newco have claims on 10M shares of common stock. Thus, following the Series A investment, Newco will have 10M common shares outstanding and would have 15M shares outstanding on conversion of the CP. EBV estimates a 30 percent probability for a successful exit, with an expected exit time in 5 years and an exit valuation of $250M. The $100M EBV fund has annual fees of 2 percent for each of its 10 years of life and earns 20 percent carried interest on all profits. Assume the following: The cost of venture capital is 10%; Expected GVM -2.5; expected retention for first round investors is 50%. GP % - 10%. Apply standard assumptions listed in the textbook and lecture notes for additional data and information required for the valuation. What is the proposed ownership today at the time of investment? O 16.65% 33.3% 40.0%
EBV is considering a $6M Series A investment in Newco. EBV proposes to structure the investment as 5M shares of convertible preferred stock. The founder and employees of Newco have claims on 10M shares of common stock. Thus, following the Series A investment, Newco will have 10M common shares outstanding and would have 15M shares outstanding on conversion of the CP. EBV estimates a 30 percent probability for a successful exit, with an expected exit time in 5 years and an exit valuation of $250M. The $100M EBV fund has annual fees of 2 percent for each of its 10 years of life and earns 20 percent carried interest on all profits. Assume the following: The cost of venture capital is 10%; Expected GVM -2.5; expected retention for first round investors is 50%. GP % - 10%. Apply standard assumptions listed in the textbook and lecture notes for additional data and information required for the valuation. What is the proposed ownership today at the time of investment? O 16.65% 33.3% 40.0%
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:EBV is considering a $6M Series A investment in Newco. EBV proposes to structure the investment
as 5M shares of convertible preferred stock. The founder and employees of Newco have claims on
10M shares of common stock. Thus, following the Series A investment, Newco will have 10M
common shares outstanding and would have 15M shares outstanding on conversion of the CP. EBV
estimates a 30 percent probability for a successful exit, with an expected exit time in 5 years and an
exit valuation of $250M.
The $100M EBV fund has annual fees of 2 percent for each of its 10 years of life and earns 20
percent carried interest on all profits. Assume the following: The cost of venture capital is 10%;
Expected GVM -2.5; expected retention for first round investors is 50%. GP% - 10%. Apply
standard assumptions listed in the textbook and lecture notes for additional data and information
required for the valuation.
What is the proposed ownership today at the time of investment?
O 16.65%
O33.3%
O40.0%
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