3. Questions A venture capitalist (VC) is willing to invest 100m for 20% ownership of a...

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3. Questions A venture capitalist (VC) is willing to invest £100m for 20% ownership of a start-up that is looking to achieve scale. All existing shares are common shares, and this deal would result in the founders owning 60% of the overall business. Seed funders own the remaining 20% of shares as common shares. The deal is close to being finalised with the following terms included in the draft term sheet: Securities: Series A simple preferred shares in the company Board: The VC designates one of five members The founders and VC are still negotiating over two options for participation and board seats: 1. Change the simple preferred shares of the VC to participating preferred shares. 2. Extend the number of board seats the VC can designate to two. ● ● Question 1 To evaluate the impact of these options, the founders project a future exit value of £1bn. 1.1 Calculate the VC's payoff if the shares are simple preferred. Include an explanation of the significance of the type of shares, whether simple preferred or convertible. (4 marks) Start writing here: 1.2 Calculate the founders' payoff if the shares are simple preferred. (2 marks) Start writing here: 1.3 Calculate the VC's payoff if the shares are participating preferred. Include an explanation of the significance of the participating preferred shares. (4 marks) Start writing here: 1.4 Calculate the founders' payoff if the shares are participating preferred. (2 marks) Start writing here: 3. Questions A venture capitalist (VC) is willing to invest £100m for 20% ownership of a start-up that is looking to achieve scale. All existing shares are common shares, and this deal would result in the founders owning 60% of the overall business. Seed funders own the remaining 20% of shares as common shares. The deal is close to being finalised with the following terms included in the draft term sheet: Securities: Series A simple preferred shares in the company Board: The VC designates one of five members The founders and VC are still negotiating over two options for participation and board seats: 1. Change the simple preferred shares of the VC to participating preferred shares. 2. Extend the number of board seats the VC can designate to two. ● ● Question 1 To evaluate the impact of these options, the founders project a future exit value of £1bn. 1.1 Calculate the VC's payoff if the shares are simple preferred. Include an explanation of the significance of the type of shares, whether simple preferred or convertible. (4 marks) Start writing here: 1.2 Calculate the founders' payoff if the shares are simple preferred. (2 marks) Start writing here: 1.3 Calculate the VC's payoff if the shares are participating preferred. Include an explanation of the significance of the participating preferred shares. (4 marks) Start writing here: 1.4 Calculate the founders' payoff if the shares are participating preferred. (2 marks) Start writing here:

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The detailed answer for the above question is provided below 11 Simple preferred shares have a fixed ... View the full answer