Assume that EBV (Series A) and Talltree (Series B) invested in Newco. It is now one year later. Owl is considering a $20M Series C investment in Newco. Owl proposes to structure the investment as 12M shares of convertible preferred stock. The employees of Newco have claims on 10M shares of common stock, and the previous venture investors hold 6M shares of Series A convertible preferred (EBV) and 8M shares of Series B Convertible Preferred (Talltree). Thus, following the Series C investment, Newco will have 10M common shares outstanding and would have 36M shares outstanding on conversion of the CP. Owl estimates a 50 percent probability for a successful exit, with an expected exit time in three years, and an exit valuation of $300M.

The $500M Owl fund has 2% management fees for 10 year and 25% carried interest. Expected GVM for the fund = 2.5.

a. What is your investment recommendation for Owl GPs following standard VC method?

How much is the GP cost and partial valuation?

b. What is your investment recommendation for Owl LPs following modified VC method?

How much is the LP cost and LP valuation?