Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Ruby Tui Venture Capital has a target rate of 50% per annum, makes an investment of $4.0 million today, and foresees an exit of $80

Ruby Tui Venture Capital has a target rate of 50% per annum, makes an investment of $4.0 million today, and foresees an exit of $80 million in five years. The exit value includes the $4.0 million investment. There are currently 400,000 shares.

Each part below is worth 6 marks. Answer the following:

a) What ownership percentage does the VC require to make the investment?

b) How many new shares are issued to the VC?

c) The probability of success (exit at $80 million) is 30% and the probability of failure (exit at $0) is 70%. What is the expected IRR?

d) Suppose an option pool of 50,000 shares is created. To maintain the same ownership percentage as in part a), how many new shares does the VC require?

e) Assume there is not an option pool. The investment by the VC above constitutes the Series A round. Now suppose there are three investment rounds, each by a different investor. The Series B and Series C rounds are for 20% and 15% of the company, respectively. If the Series A investor wants to maintain its goal stake, what ownership percentage does the Series A investor require after the Series A round? Assume the Series B investor wants to maintain its goal stake at exit as well.

Step by Step Solution

3.37 Rating (166 Votes )

There are 3 Steps involved in it

Step: 1

a To calculate the ownership percentage required by the VC to make the investment we can use the formula Ownership Percentage Investment Amount Total ... 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

Entrepreneurial Finance

Authors: J . chris leach, Ronald w. melicher

4th edition

538478152, 978-0538478151

More Books

Students also viewed these Finance questions

Question

2 6 8 .

Answered: 1 week ago