Chapter 2, Problem 1OR

In the chapter opener, you read about the spectacular rise of Airbnb. One of the early investors in Airbnb was the venture capital firm Sequoia Capital, which contributed $600,000 in 2009. Assume that by making that early-stage investment, Sequoia Capital purchased a 10% ownership stake in Airbnb. If the company was worth $31 billion in 2017, how much had the value of Airbnb grown in those 8 years?

Summary Introduction

To discuss:

The growth of value of Airbnb in 8 years.

Introduction:

Venture capitalist firms are business that takes in money from many individual investors or institutional investors and make investments decision on their behalf.

Explanation of Solution

Given information:

The venture capital invested $600,000 in the firm which is 10 % of the total worth. The current worth of the company is $31 billion.

Explanation:

The initial worth of the firm can be calculated using the following equation,

${\text{Total worth}}_{2009}=\frac{\text{Investment}}{\text{Percentage of investment}}$

$\begin{array}{c}{\text{Total worth}}_{2009}=\frac{600,000}{0.1}\\ =6,000,000\end{array}$

The change in value of the firm can be calculated as

$\text{Change in value}=\left({\text{Total worth}}_{2017}-{\text{Total worth}}_{2009}\right)$

$\begin{array}{c}\text{Change in value}=31,000,000,000-6,000,000\\ =30,994,000,000\end{array}$

Thus, the value of the firm has grown by $30,994,000,000 over 8 years.