VENTURE CAPITAL VALUATION AND DEAL STRUCTURING

Progress Ltd, an early-stage venture capital-backed company, received an initial first round investment of 5 million from Bright Ventures. Progress wants to raise a second round of financing of 2 million at the beginning of its fourth year of operations. Bright Ventures has asked your venture capital firm to invest in this second round financing.

Progress has three shareholders: Bright Ventures owning 2000 shares, James Smart, the Founder and CEO, who owns 5000 shares, and Nick Nerd, the CTO, who owns 3000 shares.Key members of the management team have been given options that can be exercised at the end of Year 3 entitling them to 20% of the company's shares, as well as another 10% that can be exercised at the end of Year 5.

Your firm aims to achieve an IRR that is equivalent to achieving a multiple of 10.5X over a 10-year period.Bright wants to maintain their existing percentage ownership of Progress

Progress believes they will be able to sell the company at the end of five years for a PE multiple of 20X when the company will achieve 4 million of net profit.

If Progress is sold at the end of Year 5, what investment multiple would Bright Ventures achieve?