Question:-

Skater Paradise provided funding for Swim Up start-up by investing convertible preferred shares. Swim Up expects to go public in 5 years, at which time it expects to have a post IPO valuation of $ 4 Billion. Until the company goes public, preferred shares will pay 7% annual dividend.

a. What percentage of post IPO equity should Venture Capital's shares to be converted in to provide Venture Capital its expected return?

b. Assume that the percentage ownership agreement remains the same as in a. What actual return Venture Capital gets, if the IPO value is $ 14 billion? 1 Billion? What if instead of an IPO, the company is acquired at $400 Million in 5 years? Remember that Skater Paradise have convertible preferred shares.

Attachment:- Problem sheet.rar