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Imagine an entrepreneur who is seeking external (equity) financing of $500,000. The venture is currently worth $2,000,000. If the entrepreneur receives the equity financing, the
Imagine an entrepreneur who is seeking external (equity) financing of $500,000. The venture is currently worth $2,000,000. If the entrepreneur receives the equity financing, the ventures value is expected to become $12,000,000 in six years. If the entrepreneur does not receive the financing, the ventures value is expected to be $9,000,000. Under these circumstances, the entrepreneur will be indifferent between accepting the investment or not if the equity investors (annual) required rate of return is
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