Name of the Entrepreneurs : Jerry regulate and Greg Robinson Venture Capital Firm : Touchstone Ventures
Data and computing Share (owners original issue at t=0) Estimated sign coronation Estimated Net Income from the company at t=5 Venture Capital Shares : (VC) Ownership VC shares as a fate of total share (VC Ownership) Entrepreneur shares as a parcel of total share (Entrepreneur Ownership) Estimated PE ratio VC Expected Return (IRR) :[(Value at t=5/Post money valuation)^(1/t)-1] Post coin military rank Pre Money Valuation Cash f minor and Valuation: Time period 0 1 2 Investment (VC) 5,000,000 Net Income (NI) Value at t=5 (PE Ratio = MV/NI) 2,000,000 $ 5,000,000 $ 8,000,000 1,552,000 44% 56% 15 60% $ 11,400,000 $ 6,400,000
3 -
4 -
5 8,000,000 120,000,000
The venture capitalist was asking for to a fault many numbers of shares which would reduce flexibility of the enterpriser and give reduce some control which the enterpriser likes to have.
Moreover the home(a) rate of relent that the venture capital firm was anticipate to have been around 60 % (Calculations above). Now at this scenario the entrepreneur is left with only 56 % (Calculations above) of ownership and a return of about 40 % (Calculations above). They will have a low grip over the control of the firm and low return. They whitethorn not even have the flexibility which is one of the competencies the entrepreneur possesses. Therefore the entrepreneur should not accept this offer. So in order to accept there should have been a halal tradeoff between the ownership and internal rate of return.
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