Early Stage Company HI:

Company HI has been in business for four years.While product development took a year longer than projected, the initial market acceptance over the last 18 months has substantially exceeded expectations.During the last trailing twelve months, the Company recorded $3.0 million in sales and even managed to breakeven.As a result of this strong growth plus upwardly revised financial projections, the Company needs to immediately raise $2.0 million in equity capital to fund this forecasted accelerated growth.Based upon the corresponding "Integrated Financial Model" for Early Stage Company HI, prepared to support this upcoming equity capital offering, Company HI is forecasting generating a $4.5 million EBITDA at the time of forecasted "Exit" (i.e. the year the business is sold).Company HI plans to raise this equity capital from a couple of small regional economic development oriented Seed Venture Capital Funds and anticipates that these Seed Venture Capital investors will want to target a 7X ROI over this five year investment horizon given the Company's proven revenues and growth rate.Based upon researched Merger & Acquisition activity, a 8X EBITDA multiple should be used to forecast the Company HI's total "Exit Value" at the time of Exit (forecasted to be in five more years).

Given the aforementioned financial projections and forecasted equity investor targeted capital return, what should Early Stage Company HI set or target for a Pre-Money Valuation?Given this targeted Pre-Money Valuation, what aggregate equity percentage will the Seed Venture Capital Fund(s) collectively own?What is the aggregate equity percentage that all the existing shareholders will own?(Check your work by using a basic Capitalization Format (i.e. Pre-money Valuation / Capital Raise / Post Money Valuation and % equity ownership, just round all percentages to tenths, for each - must add to 100%).

Pre-Money Valuation ($) = ________________________

Current Shareholders Ownership (% Equity) = ______________________

Seed Venture Capital Fund(s) Ownership (% Equity) = ________________

Computations (see Slide 4 in #6b-Lecture):

Forecasted "Exit" Year EBITDA_________________

Industry Average Business EBITDA Sales Multiple_________________

Forecasted TOTAL Exit Value_________________

Equity Capital Investment Amount_________________

Venture Capital Investor "Targeted" ROI_________________

Targeted Total Investor ROI Requirements_________________

Check Figures (Simple Cap Table):

$ Amountsand% Equity

Existing Shareholders (Pre-Money)_________________

Seed Venture Capital Fund (Capital)_________________

TOTAL Equity (Post Money Valuation)_________________100.0%

InvestorROI Hurdle Rate Valuation

Projected Exit Year EBITDA$4 M

Capital Market EBITDA Multiplex5

Company 'Exit' Valuation$ 20 M

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Invested Capital$0.5 M

Required Equity Investor ROIx 15

Required Investor 'Exit' Value$7.5 M

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Investor Ownership($7.5 M/$20 M)37.5%

Pre-Money Valuation{($0.5 M/.375)-$0.5 M}$0.83 M

Check Figure:

Existing Owners (Pre-Money)$833,33362.5%

New Owners (Capital Raised)$500,00037.5%

Total(Post Money)$1,333,333100%