Founder of a company needs to raise EUR 20 million to prepare his growing start-up for an exit. Within a year company would either succeed and generate an exit value of EUR 100 million, or fail, in which case the assets would still be sold for EUR 30 million. Founder would not accept any post-money valuation below EUR 60 million, i.e., he would not accept more than 33.33% of dilution. Suppose there is no discounting and all parties focus on expected values.

A. founder believes that he has an 80% change of a successful exit. Based on that, calculate the expected exit value. If this was the post-money valuation of a deal, what ownership would the investors get under this proposal?

B. The investors disagree with Founder's assessment of the probability of a successful exit, and estimate it to be 20%, leaving 80% probability on the "unsuccessful" exit outcome. If he insisted on getting his expected value as a post-money valuation, what would be the expected return to investors (using their assessment of the likelihood of success)? Is this within the zone of possible agreements for the investors?

C. Jack, an investor, is considering making an investment with common stock. Calculate the expected exit value as his proposed post-money valuation. What ownership would Jack have under this proposal? Can Jack make an offer that would be within the zone of possible agreements for founder?

D. Khalid, another investor, proposes to make an investment at a post-money valuation of EUR 60 million, founder's bottom line. Khalid stipulates using convertible preferred equity with a 2x multiple liquidation preference. What are founder's and Khalid's expected values of making this investment? Is this offer within the zone of possible agreements for the founder and Khalid?

E. Founder decides to make a counteroffer with a post-money valuation of EUR 80 million. She proposes a convertible preferred equity but merely with a 1x multiple liquidation preference. What are Founder's and Khalid's expected values of making this investment? Is this offer within the zone of possible agreements for founder and Khalid? (5 marks)