After successfully graduating from your University, you start working for a local VC company. As a first task your boss asks you to value a potential investment into a biotech start-up (NextBigThing). Currently the company has no sales. It just started the clinical testing of a new drug to cure breast cancer.

Q. 1.1 How would you tackle this problem? What information would you need to come up with a reasonable and well-founded valuation of the business? A colleague tells you that clinical trials for this type of drug usually take about five years and that once the drug is approved the company could either exit via an IPO or be sold to one of the major pharmaceutical companies. You do some research and find the following set of similar companies that were sold recently (last 24 months). Describe your approach (2 points)

All numbers in million US$	Sales (t-1)	Market Value (t) (debt + equity)	Type of Exit
BioNow	200	1,852	Acquisition
FastDrug	131	1,310	Acquisition
BigBio	261	2,107	Acquisition
SuperGen	83	601	Acquisition
NextGen	47	1,030	Acquisition
TechGen	198	1,030	IPO
DrugTech	217	7,486	IPO

Q.1.2 Given this information, how would you value NextBigThing today? Assume that you expect sales of $120 million in the first year after the drug approval and that your VC uses a 50% hurdle rate. (2 points)

Q. 1.3 Is your valuation in 2. pre- or post-money? (2 points)

Q. 1.4 The founders of NextBigThing offer your VC a 20% stake for $20 million. Given your valuation, is that offer a reasonable price or not? Do you need any additional information to make that call? If you do, what information do you need? (2 points)