EBV is considering a $6M Series A investment in Newco. EBV proposes to structure the investment as 5M shares of convertible preferred stock. The founders of Newco, who will continue with the firm, currently hold 10M shares of common stock. Thus, following the Series A investment, Newco will have 10M common shares outstanding and would have 15M shares outstanding upon conversion of the CP. EBV estimates a 30 percent probability for a successful exit, with an expected exit time in five years.

1) For the Cost of VC (r_vc), take the value for a typical VC investment (textbook page 69 or 155): 10 percent.

(2) For Expected Retention (retention), take the average retention for all first-round investments from Sand Hill Econometrics database (textbook page 156): 50%

(3) For Expected Gross Value Multiple (GVM), take the approximate GVM found for full set of investments in the Sand Hill Econometrics database (textbook page 160): 2.5 (4) Assume the exit valuation for this company ($ exit valuation) as the the average IPO exit valuation in Newco's industry: $250M

(5) Early Bird Ventures I (EBV) Terms and conditions are given in textbook page 37 as Committed Capital: $100M, Management Fees 2% of Committed Capital for 10 years (Lifetime Fees: $20M), Carry Level: 20%, Carry Basis: Committed.

Question 2: What is the total valuation for the company today?

A. 23.28

B. 12.34

C. 45.32

D. 34.28