EBV is considering a $6M Series A investment in Newco. EBV proposes to structure the investment as 5M shares of convertible preferred stock. The founder and employees of Newco have claims on 10M shares of common stock. Thus, following the Series A investment, Newco will have 10M common shares outstanding and would have 15M shares outstanding on conversion of the CP. EBV estimates a 30 percent probability for a successful exit, with an expected exit time in 5 years and an exit valuation of $300M.

Q: Investment recommendation (Standard VC methodfor GPs)

The $100M EBV fund has annual fees of 2 percent for each of its 10 years of life and earns

20 percent carried interest on all profits. Expected GVM = 2.5