Question
Part A ($s in millions) You are the CEO of Itelanet, Inc. an IT start-up that has been in business for 5 years. When the
Part A ($s in millions) You are the CEO of Itelanet, Inc. an IT start-up that has been in business for 5 years. When the company started (Year 0), the Founders invested $2.5 Two years later (Year 2), Itelanet closed its A Round, raising $8.0 at a post-money valuation of $17.8 Now, three years later (Year 5), Itelanet has just closed its B Round raising $20.5 from Snowscape Ventures This investment gives Snowscape Ventures 67.0% ownership. (i) Construct the capitalization tables ($ and % ownership) for the Founders, A, and B rounds. (ii) What was the valuation step up (%/year) for each round? (iii) Why or why not would the Founders and A Round investors be happy with their investment at the end of the B Round? (iv) What might be the cause of the Founders and A Round investors feelings about the B Round? PART B With the B Round in place, Itelanet's cash balance (end of Year 5) is $25.0 million Year 6 7 8 9 10 Projected operating cash flows ($9.0) ($8.5) ($7.0) ($8.5) ($9.5) Itelanet now expects to have its first product on the market at the end of year 8 and be acquired at the end of year 10. (i) Calculate a financing plan for Itelanet Year 6 to Exit (use only one additional financing C Round to get to Exit) (ii) Why or why not might Itelanet expect a large step up in value for the C Round? Part C Note: The inputs here may be different from your answers to Parts B above. Differences here do NOT mean your answers above are incorrect. Your venture capital firm is considering providing the C Round financing of $22.0 Exit expected at end of Year 10 with an expected valuation of: $155.0 Your VC firm wants a return of 30% per year Financing Occurs at the End of Year 8 (i) What % ownership would you ask for in your proposal? Itelanet accepts your proposal (ii) Calculate the Cap table (% ownership only) for the C Round (iii) What would be the return for each investment round (Founders, A, B, and C) when Exit occurs as expected at the end of Year 10 with an actual exit valuation of $175 (iv) If you were the Founder why or why not would you be pleased with your return?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started