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please answer the question 5,6,7,8, and 9. Thank you very much James Roth, CEO of the new start-up Arbuckle, Inc., which manufactures highly popular shoes,
please answer the question 5,6,7,8, and 9. Thank you very much
James Roth, CEO of the new start-up Arbuckle, Inc., which manufactures highly popular shoes, seeks to raise $5 million investment in his early stage venture. James conservatively projects earnings at exit of $5 million, five years from now, and knows that comparable companies at the time of exit trade at a price-earnings ratio of 20X. 1. What share of the company will a venture capitalist require today if her required rate of return is 50% per year? 2. What is the post-money valuation? 3. What is the pre-money valuation? 4. If the company has 1,000,000 shares outstanding before the investment, how many shares should the venture capitalist purchase? What price per share should she agree to pay if her required rate of return is 50%? 5. On further analysis, the VC and Madhav agree that the company will probably need another round of financing in addition to the current $5 million. The VC thinks the company will need an additional $3 million in equity three years from today. While the first round investors still require a 50%/year return, she thinks the second round investors will only require 30%/year. Based on this new information, what share of the company will Round 2 investors seek? 6. What is the post-money and pre-money valuation of Round 2 investment? 7. Based on the information in Question 5, what share of the company would Round 1 investors seek today (i.e., in the first round)? 8. How many shares should be issued to investors in round 1 and then subsequently to investor in round 2? 9. What is the price per share in both rounds? James Roth, CEO of the new start-up Arbuckle, Inc., which manufactures highly popular shoes, seeks to raise $5 million investment in his early stage venture. James conservatively projects earnings at exit of $5 million, five years from now, and knows that comparable companies at the time of exit trade at a price-earnings ratio of 20X. 1. What share of the company will a venture capitalist require today if her required rate of return is 50% per year? 2. What is the post-money valuation? 3. What is the pre-money valuation? 4. If the company has 1,000,000 shares outstanding before the investment, how many shares should the venture capitalist purchase? What price per share should she agree to pay if her required rate of return is 50%? 5. On further analysis, the VC and Madhav agree that the company will probably need another round of financing in addition to the current $5 million. The VC thinks the company will need an additional $3 million in equity three years from today. While the first round investors still require a 50%/year return, she thinks the second round investors will only require 30%/year. Based on this new information, what share of the company will Round 2 investors seek? 6. What is the post-money and pre-money valuation of Round 2 investment? 7. Based on the information in Question 5, what share of the company would Round 1 investors seek today (i.e., in the first round)? 8. How many shares should be issued to investors in round 1 and then subsequently to investor in round 2? 9. What is the price per share in both roundsStep by Step Solution
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