Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Management Theories Expert

problem 1: Suppose that EBV is considering a $5m Series A investment in Newco. EBV proposes to structure the investment as 5m shares of CP with FV of $5m, one-toone conversion to common, and no dividends. EBV estimates the total valuation of Newco as $30m. The founders of Newco, who will continue with the firm, currently hold 15m shares of common stock. Thus following the Series A investment, Newco will have 15m common shares outstanding, with another 5m shares upon conversion of the Series A. EBV has lifetime fees of 25% and carried interest of 20%.

a) Compute the LP cost for this investment

b) Compute the partial valuation of this investment

c) Divide this partial valuation into its two components: GP valuation and LP valuation

d) Should EBV make this investment?

e) Perform a sensitivity analysis of this investment recommendation

problem 2: Consider the following four CP investors:
Series A: $5m FV (and 2X liquidation preference) or converts to 5m shares;
Series B: $10m FV or converts to 8m shares;
Series C: $10m FV or converts to 5m shares;
Series D: $5m FV or converts to 10m shares.

In addition to these investors, the founders hold 10m shares of common. Assume 25% lifetime fees and 20% carry. Assume that the investment equals the face value in each round. Assume the total valuation is $50m.

a) Find the conversion order for these investors

b) Find the conversion conditions for these investors

problem 3: EBV is considering a $10m Series A investment in Newco. Three structures are under consideration:
Structure A1: RP ($8m FV) + 10M shares of common;
Structure A2: CP ($10m FV and 2X liquidation preference) converting to 10m shares of common;
Structure A3: RP ($5m FV) + CP ($5m FV). The CP can convert to 10m shares of common. The founders of Newco, who will continue with the firm, currently hold 10m shares of common stock. EBV has lifetime fees of 25% and carried interest of 20%.

a) Find the formulas for the partial valuation, GP valuation, and LP valuation for all three structures (A1, A2, and A3). Show all your work, including expiration diagrams and any necessary calculations of conversion conditions and carriedinterest cutoffs.

b) What remaining information, if any, is necessary to make a choice between the three structures?
Assume that EBV chose structure A1. It is now one year later, and Talltree is considering a $20m Series B investment in Newco. Two structures are under consideration:
Structure B1: CP ($20m FV with 2X liquidation preference) converting to Z shares of common;
Structure B2: RP+CS ($20m FV), with 10m shares of common.The founders of Newco, who will continue with the firm, still hold 10m shares of common stock. Talltree has lifetime fees of 25% and carried interest of 20% and that, in the event of an exit or liquidation, the Series B investors are redeemed first, followed by Series A.

c) Find the formulas for the partial valuation, GP valuation, and LP valuation for structures B1 and B2. How would you determine the level of Z for which Talltree is indifferent between the two structures. Show all your work, including expiration diagrams and any necessary calculations of conversion conditions and carried-interest cutoffs.

problem 4: Consider another company, Lateco, which has just received its fifth round of investment. These rounds have been:

Series A: CP ($5M FV) or converts to 5M shares of common.
Series B: CP ($10M FV with 2X liquidation preference) or converts to 5M shares of common.
Series C: RP+CS ($15M FV) with 5M shares of common.
Series D: CP ($30M FV) or converts to 5M shares of common.
Series E: RP+CS ($15M FV) with 5M shares of common.
The FV of each series is equal to the dollars invested in that Series. You can assume that all VC investors have a lifetime fee percentage of 25% and carried interest of 20%, and that, in the event of an exit or liquidation, the Series E investors are redeemed first, followed by Series D, then Series C, Series B, Series A.
In addition to the VC investors, the founders of Lateco also have 5M shares of common.

a) Find the formula for the partial valuation of these founder shares following the Series E investment. Show all your work, including expiration diagrams and any necessary calculations of conversion conditions and carried-interest cutoffs.

b) Compute the LP valuation for the series A investors.

problem 5: Suppose that EBV makes a $6m Series A investment in Newco for 1m shares at $6 per share. One year later, Newco has fallen on hard times, and receives a $6m Series B financing from Talltree for 6m shares at $1 per share. The founders and the stock pool have claims on 3m shares of common stock.

Following the Series B investment, what percentage of Newco (fully diluted) would be controlled by EBV? Consider the following cases:

a) Series A has no anti-dilution protection

b) Series A has full-rachet anti-dilution protection

c) Series A has round-based weighted-average anti-dilution protection

d) Series A has percentage based anti-dilution protection in which the faction of the firm owned by EBV remains constant.

problem 6: Please comment on the following statement. True, False, or Uncertain: If an investor believes that the total valuation of a company is higher than the post-transaction valuation for the transaction, then he should invest.

problem 7: Talltree is considering a $12m series B investment in Newco for CP with $12m FV or converting to 5m shares of common. The other investors are the founders, who have 10m shares of common, and the Series A investors, EBV, who have CP with $6m FV that can convert to 5m shares of common. In both of these structures, the Series B has a liquidation preference to the Series A. Both Talltree and EBV receive carried interest of 20% and charge management fees of 2 percent per year for all ten years. All the parties agree on an estimate of $30m for the total valuation of Newco, and the expected holding period is four years.

a) After this round with Talltree, what are the pre- and post-money valuations for Newco?

b) What are the pre- and post-transactions valuations?

c) After this round by Talltree, what is the LP transaction valuation for the Series A investment made by EBV?

Management Theories, Management Studies

  • Category:- Management Theories
  • Reference No.:- M91481
  • Price:- $90

Guranteed 48 Hours Delivery, In Price:- $90

Have any Question? 


Related Questions in Management Theories

The fine garments company sells fashion clothing the

The Fine Garments Company sells fashion clothing. The forecasted annual demand for their premium leather jacket is 2,000. The order-processing cost per order is $40, and the inventory holding cost is $35/item/year. How m ...

Read the following articlepreston g moon j simon r allen s

Read the following article: Preston, G., Moon, J., Simon, R., Allen, S., &Kossi, E. (2015). The relevance of emotional intelligence in projectleadership. Journal of Information Technology and Economic Development, 6(1), ...

Business expansion and sustainabilitywrite a six to seven

Business Expansion and Sustainability Write a six to seven (6-7) page paper in which you: 1. Identify three (3) job requirements (e.g., needed certifications, previous work experience, external influences, etc.) that cou ...

The ceo of skywrench was impressed with your project

The CEO of SkyWrench was impressed with your project management skills and has asked you specific questions about project management maturity models. However, he is confused with the choices. Given your knowledge of the ...

1 when choosing recommended practices what limitations

1. When choosing recommended practices, what limitations should you keep in mind? 2. What is baselining? How does it differ from benchmarking? 3. What are the NIST-recommended documents that support the process of baseli ...

Which information attribute is often of great value for

Which information attribute is often of great value for networking equipment when Dynamic Host Configuration Protocol (DHCP) is not used? When you document procedures, why is it useful to know where the electronic versio ...

1 summarize the life cycle of a product introduction growth

1. Summarize the life cycle of a product (Introduction, Growth, Maturity, Decline) and explain how the stage of the life cycle impacts price. Provide two examples of products where you have seen this occur. 2. This modul ...

Minimizing supply chaindisruption risk through

Minimizing supply chain Disruption risk through enhanced ?exibility Joseph B. Skipper Department of Operational Sciences, School of Engineering and Management, Air Force Institute of Technology, Dayton, Ohio, USA, and Jo ...

Topic 1 origins of management practices1explain what is

TOPIC 1: ORIGINS OF MANAGEMENT PRACTICES 1. Explain what is meant by ‘management'. In your answer discuss how the definitions or ‘management' have changed over time. 2. Explain the differences between effectiveness and e ...

Majorfield supply change management writingthree-pages

MAJOR/FIELD: ''SUPPLY CHANGE MANAGEMENT'' WRITING Three-pages paper single space on the following Supply Chain Topics: Did Toyota an auto manufacturing company benefit from implementing JIT? Is Tesla benefiting from Supp ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro