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Venture Capital Method Example

This document summarizes the venture capital method with multiple financing rounds. It shows how valuations, ownership percentages, and wealth are calculated at each round of investment and at exit. In the sample scenario, there are founding shares, a Series A round that values the company at $1.4 million, and a Series B that values it at $15.8 million. At a $25 million exit, the entrepreneurs' wealth is $7.1 million, the Series A investors' wealth is $15.1 million, and the Series B investors' wealth is $2.8 million.

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Krisha Pioco
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14 views1 page

Venture Capital Method Example

This document summarizes the venture capital method with multiple financing rounds. It shows how valuations, ownership percentages, and wealth are calculated at each round of investment and at exit. In the sample scenario, there are founding shares, a Series A round that values the company at $1.4 million, and a Series B that values it at $15.8 million. At a $25 million exit, the entrepreneurs' wealth is $7.1 million, the Series A investors' wealth is $15.1 million, and the Series B investors' wealth is $2.8 million.

Uploaded by

Krisha Pioco
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

VENTURE CAPITAL

Simplified by: Noel Maquiling


Venture Capital Method with Multiple Financing Round

SAMPLE

Exit Value V 25,000,000.00 Year 1 2 3 4


Number of Existing Shares (Founders) x 1,000,000.00 IRR 60% 50% 50% 40%
1+IRR 1.60 1.50 1.50 1.40
Round 1 Round 2 Time of Exit
Valuation at Exit V 25,000,000.00
Compound Discount Rate 1+r Product of 1+IRR 3.6 1.4
Investment Amount I 3,000,000.00 2,000,000.00
Number of Existing Shares x 1,000,000 3,135,593
Post-Money POST V/(1+r) or PRE YR2/1+r YR1 4,404,761.90 17,857,142.86
Pre-Money PRE POST-I 1,404,761.90 15,857,142.86
Ownership Fraction of Investors F I/POST 68.11% 11.20%
Ownership Fraction of Previous Round 1-F 1-F 31.89% 88.80%
Number of New Shares y x[F/(1-F)] 2,135,593 395,480
Total Shares Issued T x/(1-F) or x+y 3,135,593 3,531,073 3,531,073
Price per Share p I/y 1.40 5.06 7.08 V/T at exit

Entrepreneurs:
Ownership Shares x 1,000,000.00 1,000,000.00 1,000,000.00
Ownership Percentage x/T*100% 31.89% 28.32% 28.32%
Wealth x*p 1,404,761.90 5,057,142.86 7,080,000.00
First Round:
Ownership Shares y 2,135,593 2,135,593 2,135,593
Ownership Percentage y/T*100% 68.11% 60.48% 60.48%
Wealth y*p 3,000,000.00 10,800,000.00 15,120,000.00
Second Round:
Ownership Shares y 395,480 395,480
Ownership Percentage y/T*100% 11.20% 11.20%
Wealth y*p 2,000,000.00 2,800,000.00

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