Suppose a startup requires financing of 5 million dollars and it is raised in two rounds. The
Question:
Suppose a startup requires financing of 5 million dollars and it is raised in two rounds. The 1st round VC provides 3 million dollars now and the discount rate is 60%. The 1st round VC's investment period is four years. The 2nd round VC provides 2 million dollars in year 2. The 2nd round VC's investment period is two years and the discount rate is 50%. The startup is expected to earn 4 million dollars in year four and should be comparable to companies with PE ratio of 25.
a) What is the future value of investment in round 1?
b) How much is the Round1 VC's final % ownership?
c) What is the future value of investment in round 2?
d) How much is the Round2 VC's final % ownership?
e) What is the round 1 VC's retention ratio?
f) What is the round 2 VC's retention ratio?
g) How much is the Round 1 VC's current % ownership?
h) How much is the Round 2 VC's current % ownership?
Entrepreneurial Finance
ISBN: 978-0538478151
4th edition
Authors: J . chris leach, Ronald w. melicher