Question 3. Venture Capital Model Read the "Outreach Networks: First Venture Round" case and answer the following questions (1) What was the disagreement between the founder and venture capitalist? What might explain the differences in the valuation of ORN? (Think about the key assumptions / inputs used in the venture capital model) Use the following assumptions and apply the "First Round Single Stage" venture capital model to estimate % of new shares, # of new shares to VC, price per share, pre-& post-money valuation Show your modeling work in Excel. Which party's valuation is justified? Founder or VC? VC required a target rate of return of 50% and expected to exit at year 2017 APKT & ARUN were selected as the appropriate comparables; An illiquidity / lack-of-marketability discount of 25% was applied to the average forward P/E of selected comparables to account for the non-marketability of this startup's equity shares (2) P/E multiple at Exit -average forward P/E x (1-DLOM) (3) (Challenge-Yourself Question, not required; For fun and you will earn bonus points for good work) Could you come up with the appropriate assumptions and inputs to justify VC's valuation Hint: consider using the EV/EBITDA multiple A good understanding of venture valuation and what might cause the differences is critical in venture capital investing and could help at the negotiation table Question 3. Venture Capital Model Read the "Outreach Networks: First Venture Round" case and answer the following questions (1) What was the disagreement between the founder and venture capitalist? What might explain the differences in the valuation of ORN? (Think about the key assumptions / inputs used in the venture capital model) Use the following assumptions and apply the "First Round Single Stage" venture capital model to estimate % of new shares, # of new shares to VC, price per share, pre-& post-money valuation Show your modeling work in Excel. Which party's valuation is justified? Founder or VC? VC required a target rate of return of 50% and expected to exit at year 2017 APKT & ARUN were selected as the appropriate comparables; An illiquidity / lack-of-marketability discount of 25% was applied to the average forward P/E of selected comparables to account for the non-marketability of this startup's equity shares (2) P/E multiple at Exit -average forward P/E x (1-DLOM) (3) (Challenge-Yourself Question, not required; For fun and you will earn bonus points for good work) Could you come up with the appropriate assumptions and inputs to justify VC's valuation Hint: consider using the EV/EBITDA multiple A good understanding of venture valuation and what might cause the differences is critical in venture capital investing and could help at the negotiation table
