A new Internet company anticipates that it will need $30 million in venture capital in order to obtain a $1 billion terminal value in seven years.
1. Assuming that this company is a seed-stage company with no prior investors, what annualized return are investors anticipating?
2. Next, assume that the founder wants a venture capitalist to invest $30 million of venture capital in three rounds of $10 million at Time 0, Time 1, and Time 2, and with a Time 7 exit value of $1 billion. The founder anticipates returns of 85%, 60%, and 40% for rounds 1, 2, and 3, respectively. What percentage of ownership is sold during each of the three rounds? What’s the founder ownership percentage at Time 7?
3. Assuming that the founder has 25,000 shares, how many shares should be issued in the first three rounds?
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