XYZ, Inc. is a provider of courses that are delivered over the Internet. The company has developed the concept and worked out a means of controlling access and charging for its services. It expects to contract for content with professors who are recognized for “fun” teaching. These instructors intersperse their lecture material with jokes and anecdotes and use other tactics that help keep students interested. Hence, the company name. The entrepreneur believes that by making Internet education entertaining he can attract and retain a large share of the adult education market.

The following table contains the entrepreneur’s financial projections for the venture. Figures are in thousands of dollars. He is seeking to raise $6 million of venture capital (in the form of an equity investment) to initiate the program, contract with content providers, and begin marketing. Successful ventures that are similar have recently gone public at valuations around 12 times trailing net income. Assume you like the concept and are impressed by the entrepreneur. Estimate how much of the venture’s equity you would need to justify your investment. Assume any cash generated by the venture during the forecast period will be retained to finance growth. (Hint: You may want to refer back to Chapter 9 for information on the sought‐for returns of venture capital investors.)

Year	1	2	3	4	5
Revenue	$ -	$ 1,500.00	$ 8,000.00	$ 35,000.00	$ 54,000.00
Development expenses	$ 1,200.00	$ 800.00	$ 600.00	$ 1,500.00	$ 2,500.00
Marketing expenses	$ 400.00	$ 2,000.00	$ 3,000.00	$ 7,000.00	$ 12,000.00
Content expenses	$ -	$ 150.00	$ 800.00	$ 3,500.00	$ 9,000.00
Delivery expenses	$ 500.00	$ 1,800.00	$ 3,000.00	$ 5,000.00	$ 8,000.00
Net income	$ (2,100.00)	$ (3,250.00)	$ 600.00	$ 18,000.00	$ 22,500.00