10-4 VC Valuation and Deal Structuring Chariot.com needs $500,000 in venture capital to bring a new Internet messaging service to market. The firms management has approached Route 128 Ventures, a venture capital firm located in the high-tech startup mecca known as Route 128 in Boston, Massachusetts, which has expressed an interest in the investment opportunity. Chariot.coms management made the following EBITDA forecasts for the firm, spanning the next five years: Year EBITDA 1 -$175,000 2 75,000 3 300,000 4 650,000 5 1,050,000 Route 128 Ventures believes that the firm will sell for six times EBITDA in the fifth year of its operations and that the firm will have $1.2 million in debt at that time, including $1 million in interest-bearing debt. Finally, Chariot.coms management anticipates having a $200,000 cash balance in five years. The venture capitalist is considering three ways of structuring the financing:

Convertible debt paying 10% interest. Given the change from common stock to debt, the investor would lower the required IRR to 35%.. How do you calculate the terminal value?