Entreprenurial Finance
MINI CASE 2 ANSWER SHEET GROUP #2
R.K. Maroon is a seed-stage web-oriented entertainment company with important intellectual property. RKM’s founders, all technology experts in the relevant area, are anticipating a quick leap to dot-com fortune and believe that their unique intellectual property will allow 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 have organized with 1,000,000 shares and are willing to “grant” venture investors a 100% return on their business plan projections.
A. What percent of ownership must be sold to “grant” the 100% three-year return?
Value to Achieve in 3 years
Initial Financing
Time in years
Rate
Future value
Percent Owned by Investors
100,000,000.00
2,000,000.00
3
100%
16,000,000.00
16.00%
B. What is the resulting configuration of share ownership (starting from the 1,000,000 founders’ shares?
Shares Of founders
Percentage of the investors
Percentage left
Total of Shares
1,000,000.00
16.00%
84.00%
1190476.19
Shares to be Issued to Investors
190476.1905
C. Suppose the venture investors don’t buy the business plan predictions and want to price the deal assuming a second round in year 2 of $8,000,000 with a 40% return. What changes?
Second Round Money
Second Round E. Return
Money + Retunr Second Round
Second Round Investor Ownership
Founder % of ownership
Total Shares Out
Second Round Shares
First Round Shares
Founders Shares
8,000,000.00
40%
11,200,000.00
11.20%
72.80%
1,373,626.37
153,846.15
219,780.22
1,000,000.00
D. 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 final year).
1. What is
R.K. Maroon is a seed-stage web-oriented entertainment company with important intellectual property. RKM’s founders, all technology experts in the relevant area, are anticipating a quick leap to dot-com fortune and believe that their unique intellectual property will allow 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 have organized with 1,000,000 shares and are willing to “grant” venture investors a 100% return on their business plan projections.
A. What percent of ownership must be sold to “grant” the 100% three-year return?
Value to Achieve in 3 years
Initial Financing
Time in years
Rate
Future value
Percent Owned by Investors
100,000,000.00
2,000,000.00
3
100%
16,000,000.00
16.00%
B. What is the resulting configuration of share ownership (starting from the 1,000,000 founders’ shares?
Shares Of founders
Percentage of the investors
Percentage left
Total of Shares
1,000,000.00
16.00%
84.00%
1190476.19
Shares to be Issued to Investors
190476.1905
C. Suppose the venture investors don’t buy the business plan predictions and want to price the deal assuming a second round in year 2 of $8,000,000 with a 40% return. What changes?
Second Round Money
Second Round E. Return
Money + Retunr Second Round
Second Round Investor Ownership
Founder % of ownership
Total Shares Out
Second Round Shares
First Round Shares
Founders Shares
8,000,000.00
40%
11,200,000.00
11.20%
72.80%
1,373,626.37
153,846.15
219,780.22
1,000,000.00
D. 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 final year).
1. What is