John Thompson, CEO of NewVenture, Inc., seeks to raise $5 million in equity for his early stage

venture in January 2016. NewVenture is a subscription-based software company that has experienced

75% revenue growth over the last year. The company generated $2.5 million of revenue in 2015, with

an operating loss of ($450,000). Thompson projects that NewVenture will achieve $30 million in

revenue by 2020, followed by 5 years of 35% revenue growth and 3% growth thereafter. He also

estimates that the company will remain unprofitable until 2020, with EBIAT margins of about -10% on

average over the next 5 years, growing over time to an average of 5% in years 6-10 and 10% thereafter.

Asset intensity is projected to remain at its current -10%.

a. Samantha Jones of Gorsuch Capital is considering an investment in January 2016. Her

experience with comparable 'Software as a Service' (SaaS) startups suggests that NewVenture

could exit in December 2020 with a 4X to 6X Price-to-Sales multiple. Given this, what is her

projected exit value for NewVenture in 2020?

b. Use the 3 stage model to estimate the value of NewVenture in 2020, assuming that the startup

meets the projections made by Thompson. Does the multiple range assumed by Samantha

Jones make sense given the projected cash flows from NewVenture?

c. How should a forecast of lower growth or higher asset intensity relative to other firms in the

same industry impact her projected multiple?

d. What share of the company will she require in January 2016 if her annual required rate of

return is 50% and she anticipates an exit in December 2020 of $150 million? What is the implied

pre- and post-money valuation if she invests on those