Based on his new business plan, Nigel believes he needs 5 million, which he thinks will be enough funding to achieve Net Income (profit after taxes) of 5 million by the end of Year 5 in the business plan. He believes comparable companies would be valued at 20x Net Income at that time. Given the investment risk you perceive, you believe your fund must require an internal-rate-of return (IRR) of 50% in order to justify the investment. Excite already has 1,000,000 shares outstanding (all owned by Nigel).

During the second year, it becomes apparent - even though Excite is making good progress - the company will require an additional capital injection of 3 million at the beginning of Year 3.The original Year 5 forecasted financial outcome and PE-multiple remain the same.You contact your best friend at Nice Guy Ventures who, after some study, agrees to invest some or all of the required 3 million.They agree that senior managements' option pool should be maintained at 15%.However, they require a target IRR of only 30%, since the risk is now lower than at the time of the first financing round.

Question 10: Assuming Nice Guy Ventures puts up the entire 3 million, what ownership percentage of Excite would they need in order to achieve their 30% IRR?