Session 3

Question 1

• Suppose a VC is considering a $ 4 M investment in a startup
• The investor is targeting a 50% IRR on her investment over 5 years
• Further, the VC anticipates that the startup will generate $ 25 M in revenue in
  5 years, and that if the firm were to go public or be acquired, the market
  would value the firm at 6X revenue = $150 M
• In order for the VC to make the target return, her investment must be worth and what share should she have

Answer 1

her investment of $ 4M must be
worth 4 x (1.5)5 = $30 in 5 years
* In order for her investment to be worth $30 M in 5 years, she must own 30 /
150 = 20% of the firm in year 5.

Question 2

The post-money value is therefore

Answer 2

4M / 20% = $20 M

Question 3

Pre new round less than post value last round creates a ..,

Answer 3

Pre less than post - down round - destroyed value

Question 4

What cause step ups in value

Answer 4

Increases in valuation come from reaching proof points on a product,
establishing relationships with clients, getting customer buzz or anything that
suggests that the company is less likely to go bust…