Monday, March 11, 2019
Entreprenurial Finance Essay
MINI incase 2 ANSWER SHEET GROUP 2R.K. Maroon is a seed-stage web-oriented entertainment company with important intellectual property. RKMs founders, all technology experts in the relevant bea, are anticipating a quick leap to dot com fortune and believe that their unique intellectual property forget entrust them to achieve a subsequent (year 3) $100,000,000 venture value with a one-time initial $2,000,000 in venture financing.In contrast, similar dot-commers in their niche are currently seeking multistage financing amounting to $10,000,000 to achieve comparable results. The founders brace create with 1,000,000 shares and are willing to grant venture investors a 100% clear on their business plan projections.A. What percentage of self-control must be sold to grant the 100% three-year return? Value to Achieve in 3 yearsInitial FinancingTime in yearsRateFuture valuePercent Owned by Investors100,000,000.002,000,000.003100%16,000,000.0016.00%B. What is the resulting configurat ion of share ownership (starting from the 1,000,000 founders shares?Shares Of foundersPercentage of the investorsPercentage oddTotal of Shares1,000,000.0016.00%84.00%1190476.19Shares to be Issued to Investors190476.1905C. Suppose the venture investors dont corrupt the business plan predictions and want to price the deal assuming a second measure in year 2 of $8,000,000 with a 40% return. What changes?Second Round cashSecond Round E. ReturnMoney + Retunr Second RoundSecond Round Investor OwnershipFounder % of ownershipTotal Shares OutSecond Round SharesFirst Round SharesFounders Shares8,000,000.0040%11,200,000.0011.20%72.80%1,373,626.37153,846.15219,780.221,000,000.00D. Suppose the venture investors agree with the founders assessment, price the deal accordingly (as in Part B) and turn out to be wrong (an additional $8,000,000 at 40% must be injected for the net year). 1. What is the wallop on the founders and travel one investors final ownership assuming the second expositis funded by outsiders?% Owned by world-class rond and FounderTotal Shares At extendSecond Round lowest OwnershipFirst Round Final Shares OwnedFounder Final Shares Owned88.80%1,340,626.3411.20%14.21%74.59%1. Compare these to your results for Part C.Compared to the results in part C, prime(prenominal) round of investors will keep more percent of the company IN the results of C than in the part D2. Who bears the dilution from an judge round?Founders bear the cost of all rounds ringd by the first round of investors 3. Who bears the dilution from an unanticipated round?Fist round of investors fail to anticipate a second round. This might cause this first round investors will bear some of the dilutionE. Suppose that the deal is priced assuming the second round (as in Part C) and it turns out to be unnecessary. Comment on the final ownership percentages at exit (year 3). What do you conclude about the impact of anticipated but unrealized subsequent financing rounds?At the beginning, th e first round investors got a share allocations that protected them from second round dilution, duration the founders beared thehedging of the first round investors. In the other hand, if the second round never arrives, first round investors will benefit a flowerpot because they didnt bear the anticipated dilution. Meanwhile, founders and first round would not have an incentive to have a bonus arrangement unless this help them to parry a second round.