A venture was incorporated with 100,000 shares (Founder shares) and an Angel invested $1.5million and was...

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A venture was incorporated with 100,000 shares (Founder shares) and an Angel invested $1.5million and was issued 101,613 shares. The venture is not expected to produce net income or earnings until the end of year 5, the exit year, when the net income is estimated at $1,600,000 and is assumed to be stable from that point on. A publicly-traded competitor or "comparable firm" paid a dividend of $.75/share with a retention ratio of .25%. It has a stock price of $20 and 1,000,000 shares outstanding. Now, a VC wants to invest $2 million at the end of year 2 and has a required return of 40%. a. Estimate the value of the new venture at the end of year 5 using the Price-Earnings relative valuation? Then Estimate the future value of the VC's $2million investment three years from now using a discount rate of 40%? b. What is the VC's ownership percentage at exit? c. What is the new total number of shares in the venture? d. How many shares are issued to the VC investor? e. Show the dilution of the Founders and Angel. What is the percentage ownership of the 3 investors? f. What is the venture's pre-money and post-money valuation after the VC round? g What is new the Price per share? A venture was incorporated with 100,000 shares (Founder shares) and an Angel invested $1.5million and was issued 101,613 shares. The venture is not expected to produce net income or earnings until the end of year 5, the exit year, when the net income is estimated at $1,600,000 and is assumed to be stable from that point on. A publicly-traded competitor or "comparable firm" paid a dividend of $.75/share with a retention ratio of .25%. It has a stock price of $20 and 1,000,000 shares outstanding. Now, a VC wants to invest $2 million at the end of year 2 and has a required return of 40%. a. Estimate the value of the new venture at the end of year 5 using the Price-Earnings relative valuation? Then Estimate the future value of the VC's $2million investment three years from now using a discount rate of 40%? b. What is the VC's ownership percentage at exit? c. What is the new total number of shares in the venture? d. How many shares are issued to the VC investor? e. Show the dilution of the Founders and Angel. What is the percentage ownership of the 3 investors? f. What is the venture's pre-money and post-money valuation after the VC round? g What is new the Price per share?

Answer rating: 100% (QA)

a Value of the new venture at the end of year 5 using the Price Earning relative valuation No of shares outstanding in comparable ... View the full answer