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. 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. Assume the following: The cost of venture capital is 15%; GVM =2.5; expected retention for first round investors is 50%. GP% = 10%.

Will GPs recommend the Investment following Standard VC method?

Group of answer choices

Yes, since the Partial Valuation ($M) =$9.65M which is higher than required investment of $6M.

No, since the Partial Valuation ($M) =$9.65M which is higher than required investment of $6M.

Yes, since the Partial Valuation ($M) =$7.46M which is higher than required investment of $6M.

No, since the Partial Valuation ($M) =$7.46M which is higher than required investment of $6M.

Will LPs accept the investment following Modified VC method?

Group of answer choices

Yes, since the LP valuation = $9.49M and LP Cost =$5.25M

Yes, since the LP valuation = =$5.25M and LP Cost =$9.49M

Yes, since the LP valuation = $6.71M and LP Cost =$7.5M

No, since the LP valuation = $6.71M and LP Cost =$7.5M.

What is the breakeven partial valuation acceptable to the LPs?

Group of answer choices

$7.5M

$8.3M

$9.5M