You are the CEO of Itelanet, Inc. an IT start-up. Time (present): end of year 4,...

 

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You are the CEO of Itelanet, Inc. an IT start-up. Time (present): end of year 4, company was founded 4 years ago. Itelanet has completed two rounds of financing Founders invested % Ownership after A Round Founders A Round Investors Cash Balance: end of year 4. beginning of year 5 Year Expected Operating Cash Flow Itelanet expects to launch its first commercial product in Year 8. Snowscape Ventures has submitted a term sheet for Itelanet's Round B. Funding will be provided at the end of Year 5, 3 years after the A Round Snowscape Ventures' Proposal Part A (i) If Itelanet accepts Snowscape's term-sheet, when will the next round of financing be required? (ii) What are A and B Round (Snowscape's proposal) pre-money and post-money valuations? (iii) What are A and B Round (Snowscape's proposal) pre-money and post-money valuations? 40% 60% $4.50 $1.00 in Year 0 $7.5 at end of year 2 5 6 ($3) ($11) Amount Invested % Ownership $25.00 27% 7 8 ($14) ($12) 9 ($10) (iv) What most likely accounted for the valuation step-up between the A and B Rounds? (v) Construct the capitalization tables (% ownership and $ Ownership) for Itelanet for all three financing rounds: Founders, Round A, Round B vi) Why or why not would existing investors be satisfied with the progress the company made between the A and B rounds? Part B Mesa Blanca, another VC fund is considering making a 40 million investment in the B Round Their expectations $625 Note: This is different from Snowscape's expectations Exit Valuation Yrs to Exit 5, Future Dilution 25% with a required rate of return of 35% (i) What % Ownership would Mesa Blanca want at the B Round? (ii) What are the advantages and disadvantages of Mesa Blanca's proposal vs Seascape's? (iii) which would you choose? Why? You are the CEO of Itelanet, Inc. an IT start-up. Time (present): end of year 4, company was founded 4 years ago. Itelanet has completed two rounds of financing Founders invested % Ownership after A Round Founders A Round Investors Cash Balance: end of year 4. beginning of year 5 Year Expected Operating Cash Flow Itelanet expects to launch its first commercial product in Year 8. Snowscape Ventures has submitted a term sheet for Itelanet's Round B. Funding will be provided at the end of Year 5, 3 years after the A Round Snowscape Ventures' Proposal Part A (i) If Itelanet accepts Snowscape's term-sheet, when will the next round of financing be required? (ii) What are A and B Round (Snowscape's proposal) pre-money and post-money valuations? (iii) What are A and B Round (Snowscape's proposal) pre-money and post-money valuations? 40% 60% $4.50 $1.00 in Year 0 $7.5 at end of year 2 5 6 ($3) ($11) Amount Invested % Ownership $25.00 27% 7 8 ($14) ($12) 9 ($10) (iv) What most likely accounted for the valuation step-up between the A and B Rounds? (v) Construct the capitalization tables (% ownership and $ Ownership) for Itelanet for all three financing rounds: Founders, Round A, Round B vi) Why or why not would existing investors be satisfied with the progress the company made between the A and B rounds? Part B Mesa Blanca, another VC fund is considering making a 40 million investment in the B Round Their expectations $625 Note: This is different from Snowscape's expectations Exit Valuation Yrs to Exit 5, Future Dilution 25% with a required rate of return of 35% (i) What % Ownership would Mesa Blanca want at the B Round? (ii) What are the advantages and disadvantages of Mesa Blanca's proposal vs Seascape's? (iii) which would you choose? Why?