A. Three years ago, you founded a Start-up, Inc., a retailer specializing in the sale of equipment and clothing for recreational activities such as camping, skiing, and hiking. So far, your company has gone through three funding rounds: Round Year Investor Shares Share Price (in million) ($) Series A 2016 You 1 1.00 Series B 2017 Angels 2 2.50 Series C 2018 Venture capital 3 3.25 It is currently 2019 and you need to raise additional capital to expand your business. You and the other shareholders have decided to take your firm public through an IPO and issue an additional 6 million new shares through this IPO. Assuming that your firm successfully completes its IPO and all existing shareholders do not sell their shares via this IPO. (i) Your investment bankers have forecasted that 2019 net income will be $10 million and assembled the below information based on data for other companies in the same industry that have recently gone public. Assuming that your company's IPO is set at a price that implies a similar multiple, what will your company's IPO price per share be? Comparable Company Price/Earnings Eenie 12.5 Meenie 15.5 Minie 16.5 Moe 17.5 (ii) What percentage of the firm will you own before and after the IPO? Explain whether the change in your ownership is an argument for or an argument against going public. A. Three years ago, you founded a Start-up, Inc., a retailer specializing in the sale of equipment and clothing for recreational activities such as camping, skiing, and hiking. So far, your company has gone through three funding rounds: Round Year Investor Shares Share Price (in million) ($) Series A 2016 You 1 1.00 Series B 2017 Angels 2 2.50 Series C 2018 Venture capital 3 3.25 It is currently 2019 and you need to raise additional capital to expand your business. You and the other shareholders have decided to take your firm public through an IPO and issue an additional 6 million new shares through this IPO. Assuming that your firm successfully completes its IPO and all existing shareholders do not sell their shares via this IPO. (i) Your investment bankers have forecasted that 2019 net income will be $10 million and assembled the below information based on data for other companies in the same industry that have recently gone public. Assuming that your company's IPO is set at a price that implies a similar multiple, what will your company's IPO price per share be? Comparable Company Price/Earnings Eenie 12.5 Meenie 15.5 Minie 16.5 Moe 17.5 (ii) What percentage of the firm will you own before and after the IPO? Explain whether the change in your ownership is an argument for or an argument against going public
