Problem $4.$

Ratchets.com anticipates that it will need $$15,000,000$ in venture capital to achieve a terminal value of $$300,000,000$ in five years. Show your answers to the nearest $ if a monetary value, nearest whole number is a number of shares, and the nearest. $01\%$ if a percentage. You do not need to show your work, only your answers will be graded.

A$.$ Assuming it is a seed stage firm with no existing investors, what annualized return is embed ded in their anticipation?

$6=$ Annualized return.

B$.$ Suppose the founder wants to have a venture investor inject $$15,000,000$ in three rounds of $$5,000,000$ at time $0,1$ and $2$ with time $5$ exit value of $$300,000,000.$ If the founder anticipates returns of $70\%,50\%$ and $30\%$ for round $1,2$ and $3,$ respectively, what percent of ownership is sold during the first round? During the second round? During the third round? What is the founders' year$-$five ownership percentage?

First Round $FV$ with $5$ years of $70\%$ returns: $=$$

Second Round $N$ with $4$ years of $50\%$ growth $=$$

Third Round $F$ with $3$ years of $30\%$ growth $=$$

What is the Total $N$ to outside investors $=$$

Enterprise value is expected to be $$300$ million, so use this to determine percent ownership for each round.

First Round $\%$ of Total $V=300,000,000=\%$

Second Round $\%$ of Total $F=300,000,000=\%$

Third Round $\%$ of Total $F=300,000,000=\%$

Founder final ownership $=100\%-\%\%\%=\%=$

or $300,000,000$

C$.$ Assuming the founder will have $10,000$ shares, how many shares will be lssued in rounds $1,2$ and $3($at times $0,1$ and $2)?$ Convert percentages to decimal to simply the math.$|$

If Founder shares $=10,000,$ what is the total number of shares after the three rounds of finanging? $\%$

Round one shares $=$ shares

Round two shares $=$ shares

Round three shares $=$ shares

D$.$ What is the second round share price derived from the answers in Parts $B$ and $C?$

Round $2$ prices $=$

E$.$ How does the answer to part D change if $10\%$ of the year$-$five firm is set aside for Incentive compensation? How many total shares are outstanding $($including incentive shares$)$ by year $5?$

New Total Shares at year $5=$

Total shares at year $5=$

Round two shares e$.$

Round two price $=$