VC north and VC south are considering a $10 million investment in LLC, a Chicago-based startup, Both VC north and VC south believe that there is a 10% chance that LLC will be able to go public in five years at a $1 billion valuation without raising any additional capital, and a 90% chance that it will fail. VC north has a target IRR of 65% for investment in crypto startup such as LLC, whereas VC south's target IRR is only 45%.

 

Which VC will offer a higher pre-money valuation to LLC, VC north or VC south?

Explain why? (Please assume that both VCs ask for convertible preferred shares with a 1x liquidation preference, and all deal terms (other than the valuation ) are identical).

Answer rating: 100% (QA)

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