1. Assume as a VC that you want to establish a pre- and post-money valuation in support of the issuance of a term sheet.

In order to establish a discount rate, youve decided to use CAPM with the following inputs:

• Risk free rate of 4%
• Market return expectation of 10%
• Beta coefficient of 2.5

You are planning to invest $5mm in a lump sum based solely on the companys success-based forecast as the basis for your operating cash flow (OCF) projections as follows:

	Year 1	Year 2	Year 3	Year 4	Year 5
OCF	-$3mm	-$1mm	+$1mm	+3mm	+$5mm

Assume 5% annual growth after year 5.

At this point you perceive the most likely harvest to involve a M&A transaction. Recent transactions have occurred at the following operating cash flow multiples:

Transaction A: 8x Transaction B: 10x Transaction C: 11x Transaction D: 12x

The company currently has 1mm shares outstanding.

Propose an implied share price, a pre-money and post-valuation valuation for this venture.