Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Progress Ltd, an early-stage venture capital-backed company, received an initial first round investment of 5 million from Bright Ventures. Progress wants to raise a second

Progress Ltd, an early-stage venture capital-backed company, received an initial first round investment of 5 million from Bright Ventures. Progress wants to raise a second round of financing of 2 million at the beginning of its fourth year of operations. Bright Ventures has asked your own venture capital firm to invest in this second round financing. Success has three shareholders: Bright Ventures owning 2000 shares, James Smart, the Founder and CEO, who owns 5000 shares, and Nick Nerd, the CTO, who owns 3000 shares. Key members of the management team have been given options that can be exercised at the end of Year 3 entitling them to 20% of the company's shares, as well as another 10% at the end of Year 5. Your firm aims to achieve an IRR that is equivalent to achieving a multiple of 10.5X over a 10-year period. Bright wants to maintain their existing percentage ownership of Progress Progress believes they will be able to sell the company at the end of five years for a PE multiple of 20X when the company will achieve 4 million of net profit in Year 5.

a. What percentage ownership of Progress would your fund need to own at the conclusion of the second round of financing? (10 marks)

b. If Progress is sold at the end of Year 5, what investment multiple would Bright Ventures achieve? (8 marks)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

World Economic And Social Survey 2012 In Search Of New Development Finance

Authors: United Nations Department Of Economic And Social Affairs

1st Edition

9210555112, 9789210555111

More Books

Students also viewed these Economics questions

Question

=+3. What are market presence strategies, and which can you name?

Answered: 1 week ago