13. Firm BGS raises $5M now but will need an extra $15M in one years time if the development of the product works out well. The probability of good news being received in one year is 80% and the probability of bad news is 20%. If bad news is realized, there is a 10% chance that something can be worked out but 90% chance that the product is a complete dud. Firm value (or payoff) if a product can be produced is $100M. What is ownership of VC if the funding is not staged; i.e., all $20M is given to founders right away instead of staging?

a. 25.00%

b. 20.55%

c. 20.00%

d. 24.39%

e. None of the above

14. Which of the following statements is false?

a. Delaying vesting does not mitigate the free-rider problem.

b. Upfront vesting allows founders to get credit for work previously done in the firm.

c. At funding, the VC will demand that majority of founders shares be unvested.

d. Acceleration vesting can happen when firm is acquired.