Startup Inc. invented a small, solar powered speaker that is waterproof. It floats when dropped in water.

 It charges in 5 hours with a max usage time of 10 hours.



Sales in the first year were $450,000 and in second year around a $1,600,000. He expects sales to double in the next year, then increase by 50% for the next 2 years before settling to a more moderate 10% rate. Speakers costs $10 to produce. 75% of sales are online direct to the consumer (price $35) and the remainder for non profits (price $17). As an angel investor, Startup Inc. approaches you with an ask of $400,000 to ramp up their production. How much should you demand in ownership from Startup in return for the $400,000 investment if you think you could exit at the end of year 4?



Explain and note any assumptions that were made to value of the startup and the percentage of the startup that you will need to make an investment. A discount rate and reason for the cost of the company at exit (in 4 years) are needed.

Answer rating: 100% (QA)

SOLUTION To calculate the ownership percentage demanded we need to estimate the future cash flows and apply a discount rate to them Then we can use th... View the full answer