John Thompson, CEO of NewVenture,Inc. seeks to raise $5 million in equity for his early stage venture in January 2024. 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 2023, with an operating loss pf $450,000. Thompson projects that NewVenture will achieve $30 million in revenue by 2028 (with a constant growth rate in the next 5 years), followed by 5 years of 35% revenue growth (2029-2033), and 3% growth thereafter (2034 and onwards). He also estimates that company will remain unprofitable until 2028, with EBIT margins of -10% on average over the next 5 years (2024-2028), growing over time to an average of 5% in years 6-10 (2029-2033), and 10% thereafter (2034 and onwards).

SamanthaSmithofSaaSCapitalisconsideringaninvestmentinJanuary2024.Her experience with comparable software as a service (SaaS) startups suggest that NewVentuere could exit in December 2028 with a 4x to 6x Price-to-Sales multiple. Given this, what is her projected exit value for NewVenture in 2028?

UsetheDCFmodeltoestimatethevalueofNewVenturein2028,assumingthatthe startup meets the projections made by Thompson. For simplicity, ignore taxes, net working capital, capital expenditure, and the discount rate. Does the multiple range assumed by Samantha Smith make sense given the projected cash flows from NewVenture?

HowshouldaforecastoflowergrowthorlowerEBITmarginsrelativetootherfirmsin the same industry impact her projected multiple?

What share of the company will SaaS Capital need to own in January 2024 if her annual required rate of return is 50% and Samantha anticipates an exit in December 2028 of $150 million? What is the implied pre- and post-money valuation if she invests in those terms?

TheNewVenturehas1,000,000totalsharesoutstandingbeforetheinvestment.How many new shares should she purchase, and at what share price?

Samantha Smith believes Thompson will have to grant generous stock options in addition to the salaries projected in his business plan. From experience, she thinks management should have the ability to own at least a 15% share of the company in the form of options by the end of year 5.

What share of the company should Samantha insist on today if the option pool is created AFTER her investment and her required rate of return is 50%?

What share of the company should she insist on if the option pool is allocated BEFORE her investment?