Assignment 2: Venture Capital
A new Internet company anticipates that it will need $30 million in venture capital in order to obtain a $1 billion terminal value in seven years.
- Assuming that this company is a seed-stage company with no prior investors, what annualized return are investors anticipating?
- Next, assume that the founder wants a venture capitalist to invest $30 million of venture capital in three rounds of $10 million at Time 0, Time 1, and Time 2, and with a Time 7 exit value of $1 billion. The founder anticipates returns of 85%, 60%, and 40% for rounds 1, 2, and 3, respectively. What percentage of ownership is sold during each of the three rounds? What’s the founder ownership percentage at Time 7?
- Assuming that the founder has 25,000 shares, how many shares should be issued in the first three rounds?
Present your work as a three-page report, showing all calculations and formatted in the APA style. Submit the report to the appropriate W3: Assignment 2 Dropbox by Sunday, September 29, 2013.