Really Innovative (RI) is a venture capital fund, funded by renowned portfolio investor Steve Gates. In the past decade, RI have made numerous investments in tech startups with successful exits. RI is currently planning to invest $6.5M to acquire 50% preferred ownership stake in a tech startup, KPY Tech. KPY Tech is developing a neural network based anti-virus software, which will be able to detect and stop any hacking attacks on its client's IT infrastructure. Based on their detailed pitch, RI is expecting a 12X return of capital over 7 years. Moreover, RI follows the "2 and 20" fee structure with their limited partners. In this investment, 25% is financed by the VC fund and the rest by the limited partners.

i) What is the rate of return of general partners in exit?

ii) what is the rate of return to the limited partners in exit?

iii) what is the rate of return to the entrepreneurs?

iv) if the investment is success, how much will the general partners receive in exit?

v) what is the initial valuation of KPY?

Answer rating: 100% (QA)

Solution i The rate of return of general partners in exit can be calculated by dividing the total exit value by the total investment made by the gener... View the full answer