1 [Multiple Financing Rounds] A potential investor is willing to provide $500,000 in first-round financing with the expectation of a 50% annual compound rate of return over the next five years. Founders currently hold 1,000,000 shares of stock. The venture is expected to produce $500,000 in net income in year 5. A similar firm with annual net income of $1,000,000 sold shares to the public for $10,000,000. What is the percent ownership of the venture that must be sold in order to provide the venture investor's target return? What is the number of shares that must be issued to the new investor in order for the investor to earn his target return? What is the issue price per share? What is the pre-money valuation? What is the post-money valuation? Question 2 [Venture Capital Valuation Method] A venture capitalist firm wants to invest $1.5 million in your NYDeli dot.com venture that you started six months ago. You do not expect to make a profit until year four when your net income is expected to be $3 million. The common stock of BioSystems, a comparable firm, currently trades in the over-the-counter market at $30 per share. BioSystems net income for the most recent year was $300,000 and the firm has 150,000 shares of common stock outstanding. Apply the VC method to determine the value of the NYDeli at the end of four years. If VCs want a 40% compound annual rate of return on similar investments, what is the present value of your NYDeli venture? What percentage of ownership of the NYDeli dot.com venture will you have to give up to the VC firm for its $1.5 million investment