Series C: Assume that EBV and Talltree invested in Newco as series A and B, and it is now one year later. Owl is considering a $30M Series C investment in Newco. Owl proposes to structure the investment as 12M shares of convertible preferred stock. The employees of Newco have claims on 12M shares of common stock, and the previous venture investors hold 6M shares of Series A convertible preferred (EBV) and 6M shares of Series B Convertible Preferred (Talltree). Thus, following the Series C investment, Newco would have 36M shares outstanding on conversion of the CP. Owl estimates a 50 percent probability for a successful exit, with an expected exit time in three years, and an exit valuation of $700M. The $500M Owl fund has annual fees of 2 percent for each of its 10 years of life and earns 25 percent carried interest on all profits. The Owl fund applies GP% =12.5% for all investments.

Assumption:

The typical retention by round is:

1st round = 50%, 2nd round = 60%, 3rd round = 67%, 4th round or later = 70%.

LPs expected rate of return is 15%.

What is your investment recommendation for Owl?

Answer the following questions with supporting works.

For GPs?

For LPs?

Target multiple?

Target return?