respond questions for the discussion

over the next Let's Practise: Case Study CRYPTO (Part 1) Johnson. Smith (18), was assessing whether or not they should invest in the It was January 2017, and Paul, one of the partners of the venture capital fund tion of cryptographic software. The cryptographic market was in a process of firm Crypto. The company's business was the development and commercializa and government departments were moving their operations from paper to rapid expansion, given its many applications, and the fact that both enterprises online. The expected market growth was 55 per cent annually five years. In the previous year, 2016, Crypto's revenues were three million euros. The company had contacted J&S because they were looking to raise 2019, Crypto's business plan forecasted an after-tax profit margin of be able to sell their shares in the company in three years' time. Similar com- mately 30 percent of sales. Paul thought that if they were to invest, they would panies' stock was quoted at 15 times their earnings after taxes (PER or P/E ratio of 15%). Crypto was founded at the beginning of 2015, issuing 1,000,000 shares at implied that they would need an additional 100,000 shares to help recruit a price of 0.01/share. In addition, the company's employee stock option plan a management team to take charge of the European expansion. approxi- Questions for Discussion Paul, the partner of J&S responsible for the analysis, was trying to prepare some numbers for a Monday call. What might the value of Crypto be at the time of J&S exit? What percentage of Crypto's capital should J&S request in exchange VALUATION OF NEW VENTURES 233 for a project with Crypto's current risk profile was 40 per cent annually. for the two million euros of venture capital financing? J&S' target internal rate of How many shares would the venture capital fund be getting with their to million euros? How much would they pay per share? retum over the next Let's Practise: Case Study CRYPTO (Part 1) Johnson. Smith (18), was assessing whether or not they should invest in the It was January 2017, and Paul, one of the partners of the venture capital fund tion of cryptographic software. The cryptographic market was in a process of firm Crypto. The company's business was the development and commercializa and government departments were moving their operations from paper to rapid expansion, given its many applications, and the fact that both enterprises online. The expected market growth was 55 per cent annually five years. In the previous year, 2016, Crypto's revenues were three million euros. The company had contacted J&S because they were looking to raise 2019, Crypto's business plan forecasted an after-tax profit margin of be able to sell their shares in the company in three years' time. Similar com- mately 30 percent of sales. Paul thought that if they were to invest, they would panies' stock was quoted at 15 times their earnings after taxes (PER or P/E ratio of 15%). Crypto was founded at the beginning of 2015, issuing 1,000,000 shares at implied that they would need an additional 100,000 shares to help recruit a price of 0.01/share. In addition, the company's employee stock option plan a management team to take charge of the European expansion. approxi- Questions for Discussion Paul, the partner of J&S responsible for the analysis, was trying to prepare some numbers for a Monday call. What might the value of Crypto be at the time of J&S exit? What percentage of Crypto's capital should J&S request in exchange VALUATION OF NEW VENTURES 233 for a project with Crypto's current risk profile was 40 per cent annually. for the two million euros of venture capital financing? J&S' target internal rate of How many shares would the venture capital fund be getting with their to million euros? How much would they pay per share? retum