A VC firm, Everest Partners, is considering making an investment to a start-up company, OutReach Networks. OutReach currently, has 1000 shares, and 70% of the shares are held by the founder. As a tech company in early stage, OutReach needs $50 million from VC as first-round financing. The target rate of return that the VC firm requires is 50%, and the expected horizon of investment is 7 years. The projected EBITDA of OutReach at year 7 is $350 million. By examining the public firms in the market, the VC firm finds a comparable firm to OutReach that does business in the same industry. The comparable firm currently has a market capitalization of $2,000 million, $700 million worth of debt outstanding, and EBITDA of $300 million.

a. What is the EV-to-EBITDA ratio of the comparable firm?

b. Assuming a 20% liquidity discount, what is the Exit Value of OutReach (in millions) in Year 7?

c. What is the postmoney value of OutReach (in millions) today?

d. How much ownership of OutReach the VC firm should ask for to make the investment?

e. If OutReach accepts the offer, what is the ownership of the founder after the VC investment?\

f. Suppose that the founder of OutReach wants to negotiate for a lower equity stake for VC in exchange for its investment. Which of the following argument(s) can the founder use to achieve his goal? 1)The comparable firm's equity is overvalued. 2)The projected EBITDA of OutReach in year 7 is too low. 3) The target rate that the VC uses is too high. 4 The liquidity discount should be higher than 20 percent.