Scenario where venture capital investment is spread over three rounds: $1,500,000 at t=0, 1,250,000 at t=2, and 750,000 at t = 4.
Investors at t=0 require a 70% annual target return, investors at t=2 will demand a 50% annual target return, and investors at t=4 will require a 30% annual target return. The firm is expected to earn $6.25 million in year 5, and comparable firms have a P/E ratio of 18.
There are 1 million shares owned by the founder and the VC investors will get new shares. Early investors anticipate the later investments.
What percentage of the final value of the firm does the round 1 investor require at t=5?
What percentage of the final value of the firm does the round 2 investor require at t=5?
What percentage of the final value of the firm does the round 3 investor require at t=5?
How many shares will the round 1 investor receive when the investment is made?