1. Ratchets.com anticipates that it will need $15,000,000 in venture capital to achieve a terminal value of $400,000,000 in five years.

A. Assuming it is a seed stage firm with no existing investors, what annualized return is embedded in their anticipation?

B. Suppose the founder wants to have a venture investor inject $15,000,000 in three rounds of $5,000,000 at time 0, 1 and 2 with time 5 exit value of $300,000,000. If the founder anticipates returns of 60%, 50% and 30% for round 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 founders year-five 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?

E. How does the answer to part D change if 10% of the year-five firm is set aside for incentive compensation? How many total shares are outstanding (including incentive shares) by year 5?