Food on Wheels

You recently joined a Venture Capital fund called UIC Ventures as an investment associate. Your line manager (a GP of the fund) came across a very interesting start up called Food on Wheels operating in the food delivery sector in Spain. The start-up established in 2018, wants to raise 250,000 euros mainly for marketing purposes. Food on Wheels already has clients and last year had a turnover of 300,000 euros. The company was incorporated with 100,000 shares.

Your line manager asks you whether you think UIC Ventures should invest in Food on Wheels and to calculate what proportion of Food Wheels should UIC Ventures require in exchange of an investment of 250,000 euro?

You know from the investment strategy of UIC Ventures that the fund typically seeks to exit in 3 years time and expects 40% IRR or around 3x.

What would be your suggestion to your line manager, should UIC Ventures invest in Food on Wheels?

What if the turnover was 200,000 in 2018?

What if the turnover was 100,000 in 2018?

Tips:

You would need to identify the annual growth of the industry in Spain and a P/E ratio of a comparable company (you may want to calculate the average P/E if you identify more than one comparable companies)

You would also need to identify the profit margin of a comparable company (you may want to calculate the average if you identify more than one companies operating in the industry)

You would need to calculate terminal and discounted terminal valuation

Number of new shares and price per share