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R$.$K$.$ Maroon $($RKM$)$ is a seed$-$stage, web$-$oriented entertainment company with important intellectual property. RKM$$s founders, all technology experts in the relevant area, are anticipating a quick leap to dot$-$com fortune and believe that their unique intellectual property will allow them to achieve a subsequent $($Year $3)$ $$100$ million venture value with a one$-$time initial $$2$ million in venture financing.

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In contrast, similar dot$-$com firms in their niche are currently seeking multistage financing amounting to $$10$ million to achieve comparable results. The founders have organized with one million shares and are willing to grant venture investors a $100\%$ annual return on their business plan projections.

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A$.$ What percentage of ownership must be sold to grant the $100$ percent annual return for the three years of investment?

B$.$ What is the resulting configuration of share ownership $($starting from the one million founders$$ shares$)?$

C$.$ Suppose the first$-$round venture investors don$$t agree with the business plan predictions and want to price the deal assuming a second round of financing in Year $2$ of $$8$ million with a $40$ percent return. What changes?

D$.$ Suppose the venture investors agree with the founders$$ assessment, price the deal accordingly $($as in Part B$),$ and turn out to be wrong with an additional $$8$ million at $40$ percent injected for the final year.

$1.$ What is the impact on the founders$$ and round$-$one investors$$ final ownership assuming the second round is funded by outsiders?

$2.$ Compare these results to your results for Part C$.$

$3.$ Who bears the dilution from an anticipated round?

$4.$ Who bears the dilution from an unanticipated round?

E$.$ Suppose that the deal is priced assuming the second round $($as in Part C$)$ and it turns out to be unnecessary. Comment on the final ownership percentages at exit $($Year $3).$ What do you conclude about the impact of anticipated but unrealized subsequent financing rounds?