You plan to invest $5 million in a startup biotech venture. Projections show net income in Year 7 of $20 million. The few profitable biotech companies are trading at an average P/E ratio of 15. The company currently has 500,000 shares outstanding. You believe that a target rate of return of 50 percent is required for a venture of this risk.
1. What is the Required Percent Ownership?
2. What is the value of the company today at a 50% discount rate?
3. How many new shares will be issued to you?