Problem 1: VC Method

EBS Infinite Growth is a venture capital fund that invests in expansion stage opportunities with high growth potential in export markets. They use the VC method, for which they use a cost of capital of 40%, an exit horizon of 5 years and an EBITDA multiple at exit of 6 times. A target startup you are analyzing has a current EBITDA of 120,000 euros per year and expected growth of 15% per year during your investment horizon. You want to determine what percentage share of the target startup you would acquire, if you invest 70,000 euros in this opportunity.

Problem 2: Liquidation rights

Given the following information about a potential investment in a startup:

Investment = 50 million

Equity = 25%

Liquidation rights = 1x

Calculate:

Implied valuation of the company, pre- and post- money

Upon liquidation, payoff for founders and investors under the scenarios of liquidation values for each type of equity investment.

Effective share (%) that the founders and investors get from the liquidation in each case.

What happens if liquidation preference is 2x ? (answer all of the above in this case)

Possible terms for the equity investment (types of equity offered to investors, given that founders will always get common stock):

Common stock

Convertible, preferred, non-participating stock

Convertible, preferred, participating stock

Scenarios of liquidation values:

25 million

100 million

300 million

Deliverable: Word file with calculations and explanations.