Question: Case Questions: Valhalla Partners Note: All calculations should be specified in typed exhibits. Any excel spreadsheet work should be separately emailed to me AND be

Case Questions: Valhalla Partners

Note: All calculations should be specified in typed exhibits. Any excel spreadsheet work should be separately emailed to me AND be put in typed exhibits.

Note: Generally, pro-rata contribution in a follow-on round means that the investor keeps their percentage ownership. For example, if previous investors own 20% of the firm, and the next financing round is $10 million, they keep pro rata by investing 0.2*10 = $2 million to the next financing round.

1. Based on the information in the investment memo, what do you think are the top 3 business (not financing) risks facing Telco Exchange? Why are these important to TX' success? Is TX addressing these risks?

"The company also had big challenges, including an unproven management team and fragmented competitive environment" (pg 1)

2. Assume that Valhalla decides to make the investment:

What valuation do you think is appropriate at an assumed discount rate of 50%?

What would be Valhalla's expected IRR from the investment at a $5 million pre-money valuation?

What would be Valhalla's expected IRR from the investment at a $10 million pre-money valuation.

Remember to specify justifications for any assumptions that you use in your calculations (such as any expected series B rounds).

Hint: Analyze the expected cash flows for Valhalla, not TX.

3. Should Art Marks vote to make the investment in Telco Exchange? Why or why not? Hint - consider your answers to the two questions above.

4. What is your assessment of Valhalla's due diligence process? In your opinion, what are the greatest benefits of this process? What drawbacks does it present?

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