Entreprenurial Finance Essay

MINI CASE 2 ANSWER SHEET GROUP 2R.K. Maroon is a seed-stage web-oriented entertainment company with important gifted topographic point. RKMs founders, all technology experts in the relevant area, are anticipating a quick leap to dot-com fortune and believe that their unique intellectual property will allow them to achieve a subsequent (year 3) $100,000,000 venture value with a one-time initial $2,000,000 in venture financing.In contrast, similar dot-commers in their receding are currently seeking multistage financing amounting to $10,000,000 to achieve comparable results. The founders have organized with 1,000,000 shares and are willing to grant venture investors a 100% go across on their business plan projections.A. What percent of ownership must be sold to grant the 100% three-year return? Value to Achieve in 3 yearsInitial FinancingTime in yearsRateFuture valuePercent owned by Investors100,000,000.002,000,000.003100%16,000,000.0016.00%B. What is the resulting abidance of sha re ownership (starting from the 1,000,000 founders shares?Shares Of foundersPercentage of the investorsPercentage leftTotal of Shares1,000,000.0016.00%84.00%1190476.19Shares to be Issued to Investors190476.1905C. Suppose the venture investors dont buy the business plan predictions and require to price the cut through assuming a second declamatory in year 2 of $8,000,000 with a 40% return. What changes? fleck Round MoneySecond Round E. ReturnMoney + Retunr Second RoundSecond Round Investor OwnershipFounder % of ownershipTotal Shares OutSecond Round Shares initiative Round SharesFounders Shares8,000,000.0040%11,200,000.0011.20%72.80%1,373,626.37153,846.15219,780.221,000,000.00D. Suppose the venture investors agree with the founders assessment, price the deal accordingly (as in Part B) and turn out to be wrong (an supererogatory $8,000,000 at 40% must be injected for the final year). 1. What is the impact on the founders and lag one investors final ownership assuming the second ro undis funded by outsiders?% Owned by first rond and FounderTotal Shares At ExitSecond Round Final OwnershipFirst Round Final Shares OwnedFounder Final Shares Owned88.80%1,340,626.3411.20%14.21%74.59%1. Compare these to your results for Part C.Compared to the results in part C, first round of investors will keep more percent of the company IN the results of C than in the part D2. Who bears the dilution from an anticipated round?Founders bear the cost of all rounds anticipated by the first round of investors 3. Who bears the dilution from an unanticipated round?Fist round of investors fail to anticipate a second round. This might cause this first round investors will bear some of the dilutionE. Suppose that the deal is priced assuming the second round (as in Part C) and it turns out to be unnecessary. Comment on the final ownership percentages at exit (year 3). What do you purpose about the impact of anticipated but unrealized subsequent financing rounds?At the beginning, the first r ound investors got a share allocations that protected them from second round dilution, while the founders beared thehedging of the first round investors. In the other hand, if the second round never arrives, first round investors will benefit a potentiometer because they didnt bear the anticipated dilution. Meanwhile, founders and first round would not have an incentive to have a bonus arrangement unless this help them to avoid a second round.