q5 q1

You are a junior partner at a top tier VC firm and you're considering making your first investment. Before presenting the company to your partners, you think carefully about the structure of terms you'd like to propose for the investment because you want the company to succeed, but you also want to maximize your return AND protect against any downside exposure. You fully expect the company you're investing in to be acquired in the next three years, and you expect that over that time you'll need to invest $15M dollars to retain 25% ownership.

Question:

You propose to purchase $15M in participating preferred shares with 1x liquidation preference. If the company is acquired for $85M, what is your cash-on-cash at exit?

a) 1.00

b) 1.42

c) 3.1

d) 1.58

e) 2.17