ByteRiotStorm is a startup company that has just raised series A VC investment, and does not expect to raise additional capital.1 The company has 12M common shares and issued 8M convertible redeemable preferred shares owned by our VC, the series A shares, during the just completed financing round. The series A were issued at $10.00 per share and are convertible 1:1 into common.

a. Construct the payout diagram from the VCs perspective. Use a sufficient range of possible liquidation values to show the overall structure of the payout – label slopes where necessary.

b. Suppose the exit if successful will be in 6 years, and the volatility of a series A financed startup is estimated as 50% per year. Assuming a risk-free rate of 1.5% what is the value of the VCs investment?

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