Background: In 2018, legendary founder Arie Bell approaches you, as the managing partner at Kleiner Perkins, the premier VC on Sand Hill Road, Menlo Park CA. Arie asks you to lead Series A round of his new company, Allogene Therapeutics. You are honored and because he just had a phenomenal exit of his prior company, Kite Pharmaceuticals to Gilead, you have complete confidence that his track record speaks for itself. So without knowing much about the product and without much due diligence, you choose to invest in him. You want to move quickly to get in the deal and get as much of a slice of it as possible.

Opportunity: You end up deciding that a $300MM Series A should get the company to the next big scientific milestone when it can raise more capital. Series A rounds are huge now, so while $300MM seems like a lot, you decide that this is what is needed for you to get as much of the ownership as possible now. But, your partners are surprised at the big amount. In the end, you convince your partners that this is the right number.

So, you invest $200MM and another firm will take the remaining $100MM. There are 2 board seats at the company now and the Series A investors will increase the number of total seats. How much is under question.

Allogene is expecting product approval in 2 years and year 5 revenues hitting $800MM with $300MM in net income. Given that this is a new space, you really have no idea what the valuation should be. But, since a few loosely comparable companies can get Price/Earnings ratios of 20x, you think that this could be a good bet and the return will exceed your 40% IRR requirement for the fund.

Assume that there are 2MM shares outstanding already from the prior seed round and founder shares.

Where calculations are required, please show all calculations.

1. What is the pre-money valuation? (4 points)

2. What is the post-money valuation? (4 points)