Venture Capital Method with Multiple Rounds.
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Venture Capital Method
(w/ Multiple Financing Rounds)
(?)
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vcmethod.com
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Exit Value1$25,000,000
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Number of existing shares (founders)21,000,000
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Disc Rate:
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Round 1Round 2Time of ExitYear1234
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Valuation at exit3V$25,000,00012r60%50%50%40%
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Compound discount rate4(1+R)3.601.4013(1+r)1.601.501.501.40
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Investment amount5I$3,000,000$2,000,000
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Number of existing shares6x1,000,0003,135,593
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Post-Money7POST$4,404,762$17,857,143
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Pre-Money8PRE$1,404,762$15,857,143
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Ownership fraction of investors9F68.11%11.20%
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Ownership fraction of previous round1-F31.89%88.80%
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Number of new shares10y2,135,593395,480
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Total shares issued3,135,5933,531,0733,531,073
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Price per share11p$1.40$5.06$7.08
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Entrepreneurs:
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Ownership shares1,000,0001,000,0001,000,000
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Ownership percentage31.89%28.32%28.32%
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Wealth$1,404,762$5,057,143$7,080,000
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First Round:
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Ownership shares2,135,5932,135,5932,135,593
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Ownership percentage68.11%60.48%60.48%
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Wealth$3,000,000$10,800,000$15,120,000
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Second Round:
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Ownership shares395,480395,480
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Ownership percentage11.20%11.20%
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Wealth$2,000,000$2,800,000
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Notes:
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1Terminal Value (at time of exit)
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2Number of existing shares (owned by the entrepreneurs)
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3Valuation of company at the time of event (financing or exit)
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4The compound discount rate (1+R) is the product of the discount rates (1+r) between the time of two valuation events
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5Amount of investment per round
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6Number of existing shares (prior to financing event)
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7Post-Money Valuation: POST = V/(1+R)
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8Pre-Money Valuation: PRE = POST - I
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9Required ownership fraction for the investor: F = I / POST
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10Number of shares the investors require to achieve their desired ownership fraction: y = x[F/(1-F)]
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11Price per share: p = I / y
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12Discount rates per year. For calculating the compound discount rate (1+R).
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V1.013Use the product of the discount rates (1+r) to calculate the compound discount rates (1+R) used in [4].
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