Question 27:

[Venture Capital Valuation Method] A venture capitalist firm wants to invest $1.5 million in your NYDeli dot.com venture that you started six months ago. You do not expect to make a profit until year four when your net income is expected to be $3 million. The common stock of BioSystems, a comparable firm, currently trades in the over-the-counter market at $30 per share. BioSystems net income for the most recent year was $300,000 and the firm has 150,000 shares of common stock outstanding.

- Apply the VC method to determine the value of the NYDeli at the end of four years.

Comparables EPS = ?

Comparables P/E = ?

Ventures projected value at year 4 = ?

- If VCs want a 40% compound annual rate of return on similar investments, what is the present value of your NYDeli venture?

Present value = (Value @ year 4) / (1 + r)⁴ = ?

- Based on the pre-money value, what percentage of ownership of the NYDeli dot.com venture will you have to give up to the VC firm for its $1.5 million investment?

Ownership = ?

- Based on the post-money value, what percentage of ownership of the NYDeli dot.com venture will you have to give up to the VC firm for its $1.5 million investment?

Owernership = ?