Q$2.$ Marlie's and 'Tortie's venture Borsolona produces recasable plasbic$-$he shopping bap made ont

of used tea leaves. They managed to obtain financing from I piscilo Ventures throbagh comvertible

preferred stock. They secured an irvestment of $$3M$ at a premoney valuation of $$6M.$ The

convertible's preferred terms are given by a liquidation preference of $1\mathrm{.}33x$ and a divalend of $R{\mathrm{.}33}^{**}h.$

The expected exir is projected four years down the roak.

Just befote they were about to contemplate $1$issilo's terms, the two founders also receive a financing!

offer from Pressilo Partners, another verature firm that is very active in packapaing and distribution

supply chains. P'ressilo offers a more attractive per$-$money valuation of $$7M$ and offers to invest

through participating preferred stock with the same preferred terms as Lissilo.

$(10$ marks$)$

Compute Lissilo's ownership share.

Compute lissilo's preferred temms at the cxpected time of exit.

Compute the coeversion threshold for this security at the expected time of exit.

Would the conversion threshold increase or decrease in the case that the exit occurs rwo years affer

financingr?

What would be the cash flow to Marlie and Tortic if Borsolona was sold at $$20M$ after four years?

Compute the conversion threshold for Pressilo.

Compute the cash flow to the founders if Borsolona is sold at $$20M$ after four years.

Which offer should Marlie and Tortie aceppt?

Would Marlie and Tortie change their choice with a cap to the participating at $$15M?$After successfully graduating from your University, you start working for a local VC company. As a first task your boss asks you to value a potential investment into a biotech start$-$up $($NextBigThing$).$ Currently the company has no sales. It just started the clinical testing of a new drug to cure breast cancer. A colleague tells you that clinical trials for this type of drug usually take about five years and that once the drug is approved the company could either exit via an IPO or be sold to one of the major pharmaceutical companies. You do some research and find the following set of similar companies that were sold recently $($last $24$ months$).($All numbers inSales $($t$+1)$Market value $($in t$)$ Type of Exit million US$$)($debt $+$ equity$)$ BioNow$2001,852$Acquisition FastDrug$1311,310$Acquisition BigBio$2612,107$Acquisition SuperGen$83601$Acquisition NextGen$471,030$Acquisition TechGen$1987,486$IPO DrugTech$2178,042$IPO

$1.$ How would you tackle this problem? What information would you need to come up with a reasonable and well$-$founded valuation of the business. $(2$ marks$)2.$ Given this information, how would you value NextBigThing today? Assume that you expect sales of $$120$ million in the first year after the drug approval and that your VC uses a $50\%$ hurdle rate.$(4$ marks$)3.$Is your valuation in $2.$ pre$-$ or post$-$money? $(1$ marks$)4.$The founders of NextBigThing offer your VC a $20\%$ stake for $$20$ million. Given your valuation, is that offer a reasonable price or not? Do you need any additional information to make that call? If you do$,$ what information do you need? $(3$ marks$)$