Question 1
EBV is considering a $5m Series A investment in Newco.
Possible Structure: EBV proposes to structure the investment as 5m shares of CP with FV of $5m, one-to one conversion to common, and no dividends.
Total Valuation Estimated from Newco: $30 million
Founder holds 15 million shares of Newco
a) LP Cost in this investment = 30-(10-5)= $25 million
b) Partial Valuation that EBV is buying in the Investment= (30/(15+5))*5= $7.5 million
c) Division of partial Into valuation, GP valuation= $5 million and the remaining is LP valuation which is $2.5 million
d) Yes EBV should make this investment
e) Founder holds 15 million shares of Newco
Question 2
a) Series A: $5m FV (and 2X liquidation preference) or converts to 5m shares;
Total Valuation: $50 million
Total Number of shares under this scenario: 15 million
Hence the investment will be =(50/20)*5= $12.5 million, hence this is the better option
Series B: $10m FV or converts to 8m shares;
Total Valuation: $50 million
Total Number of shares under this scenario: 18 million
Hence the investment will be =(50/18)*8= $11.3 million, hence this is the better option
b) Series C: $10m FV or converts to 5m shares;
Total Valuation: $50 million
Total Number of shares under this scenario: 15 million
Hence the investment will be =(50/15)*5= $16.66 million, hence this is the better option
Series D: $5m FV or converts to 10m shares.
Total Valuation: $50 million
Total Number of shares under this scenario: 20 million
Hence the investment will be =(50/20)*10= $25 million, hence this is the better option
Question 3
Series C: $10m FV or converts to 5m shares;
Total Valuation: $50 million
Total Number of shares under this scenario: 15 million
a) Hence the investment will be =(50/15)*5= $16.66 million, hence this is the better option
b) Series D: $5m FV or converts to 10m shares.
Total Valuation: $50 million
Total Number of shares under this scenario: 20 million
c) Hence the investment will be =(50/20)*10= $25 million, hence this is the better option
Question 4
Series A: CP ($5M FV) or converts to 5M shares of common.
Series B: CP ($10M FV with 2X liquidation preference) or converts to 5M shares of common.
a) Series C: RP+CS ($15M FV) with 5M shares of common.
Series D: CP ($30M FV) or converts to 5M shares of common.
Series E: RP+CS ($15M FV) with 5M shares of common.
Series A: $5m FV (and 2X liquidation preference) or converts to 5m shares;
Total Valuation: $50 million
Total Number of shares under this scenario: 15 million
Hence the investment will be =(50/20)*5= $12.5 million, hence this is the better option
b) Series B: $10m FV or converts to 8m shares;
Total Valuation: $50 million
Total Number of shares under this scenario: 18 million
Hence the investment will be =(50/18)*8= $11.3 million, hence this is the better option Series C: $10m FV or converts to 5m shares;
Total Valuation: $50 million
Total Number of shares under this scenario: 15 million
Hence the investment will be =(50/15)*5= $16.66 million, hence this is the better option
Series D: $5m FV or converts to 10m shares.
Total Valuation: $50 million
Total Number of shares under this scenario: 20 million
Hence the investment will be =(50/20)*10= $25 million, hence this is the better option
Question 5
Suppose that EBV makes a $6m Series A investment in Newco for 1mshares at $6 per share. One year later, Newco has fallen on hard times, and receives a$6m Series B financing from Talltree for 6m shares at $1 per share. The founders and thestock pool have claims on 3m shares of common stock.
a) Total Valuation Estimated from Newco: $30 million
Founder holds 15 million shares of Newco
b) LP Cost in this investment = 30-(10-5)= $25 million
Partial Valuation that EBV is buying in the Investment= (30/(15+5))*5= $7.5 million
c) Division of partial Into valuation, GP valuation= $5 million and the remaining is LP valuation which is $2.5 million
d) Yes EBV should make this investment
Question 6
If an investor believes that the total valuation of a company is higher than the post-transaction
valuation for the transaction, then he should invest: False
Question 7
Talltree is considering a $12m series B investment in Newco for CP with $12m FV or converting to 5m shares of common. The other investors are the founders, who have 10m shares of common, and the Series A investors, Talltree, who have CP with $6m FV that can convert to 5m shares of common.
a) Total Valuation Estimated from Newco: $30 million
Founder holds 15 million shares of Newco
b) LP Cost in this investment = 30-(10-5)= $25 million
c) Partial Valuation that Talltree is buying in the Investment= (30/(15+5))*5= $7.5 million
Division of partial Into valuation, GP valuation= $5 million and the remaining is LP valuation which is $2.5 million
Yes Talltress should make this investment.