You are an early-stage VC conducting due diligence on an IT start-up. You are willing to cotribute $1,512,000 in the A round of financing and require a capital return (Le, capital multiplier) of 12. You anticipate B and C rounds of financing in years 3 and 6 that will dilute your position by 30% and 40%, respectively, because your firm will not participate in either additional round. You estimate firm value at $120,000,000 in nine years. Required: a. What initial ownership position should you require for your investment? b. What is your initial valuation of the company before your investment? c. What is the expected IRR of the investment? d. Suppose you stage the distribution of the capital into $512,000 installments disbursed immediately, at the end of the first year, and at the end of the second year. What is the IRR of the investment in this scenario? Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D What initial ownership position should you require for your investment? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Initial weight % Required A Required B > Required A Required B Required C Required D What is your initial valuation of the company before your investment? Note: Do not round intermediate calculations. Pre-money valuation < Required A Required C >
You are an early-stage VC conducting due diligence on an IT start-up. You are willing to cotribute $1,512,000 in the A round of financing and require a capital return (Le, capital multiplier) of 12. You anticipate B and C rounds of financing in years 3 and 6 that will dilute your position by 30% and 40%, respectively, because your firm will not participate in either additional round. You estimate firm value at $120,000,000 in nine years. Required: a. What initial ownership position should you require for your investment? b. What is your initial valuation of the company before your investment? c. What is the expected IRR of the investment? d. Suppose you stage the distribution of the capital into $512,000 installments disbursed immediately, at the end of the first year, and at the end of the second year. What is the IRR of the investment in this scenario? Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D What initial ownership position should you require for your investment? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Initial weight % Required A Required B > Required A Required B Required C Required D What is your initial valuation of the company before your investment? Note: Do not round intermediate calculations. Pre-money valuation < Required A Required C >
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Transcribed Image Text:You are an early-stage VC conducting due diligence on an IT start-up. You are willing to cotribute $1,512,000 in the A round of
financing and require a capital return (Le, capital multiplier) of 12. You anticipate B and C rounds of financing in years 3 and 6 that
will dilute your position by 30% and 40%, respectively, because your firm will not participate in either additional round. You
estimate firm value at $120,000,000 in nine years.
Required:
a. What initial ownership position should you require for your investment?
b. What is your initial valuation of the company before your investment?
c. What is the expected IRR of the investment?
d. Suppose you stage the distribution of the capital into $512,000 installments disbursed immediately, at the end of the first year,
and at the end of the second year. What is the IRR of the investment in this scenario?
Complete this question by entering your answers in the tabs below.
Required A
Required B Required C
Required D
What initial ownership position should you require for your investment?
Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
Initial weight
%
Required A
Required B >
Transcribed Image Text:Required A
Required B Required C
Required D
What is your initial valuation of the company before your investment?
Note: Do not round intermediate calculations.
Pre-money valuation
< Required A
Required C >
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