Implied price of funding
Starware software was founded last year to develop software for gaming applications. Initially, the founder invested $800,000 and received 8 million shares of stock. Starwarenow needs to raise a second round of capital, and it has identified an interest venture capitalist. This venture will invest $1 million and wants to own 20% of the company after the investment is completed.
a) How many shares must the venture capitalist receive to end up with 20% of the company? What is the implied price per share of this funding round
IRR of venture capital
Suppose venture capital firm GSB partners raised $100 million of committed capital. Each year over the 10-year life of the fund, 2% of this committed capital will be used to pay GSB's management fee.
As is typical in the venture capital industry, GSB will only invest $80 million ( committed capital less lifetime management fees). At the end of 10 years, the investments made by the fund are worth $400 million. GSB also chrges 20% carried interest on the profits of the fund ( net of management fees).
a) assuming the $80 million in invested capital is invested immediately and all proceeds were received at the end of 10 years, what is the IRR of the investments GSB partners made?
Ignore all management fees.
b) Of course, as an investor or limited partner, you are more interested in your own IRR( that is, the IRR including all fees paid). Assuming that investors gave GSB partners the full $100 million up fromt, what is the IRR for GSB's limited partners( thatis, the IRR net of all fees paid)?
IPO
Your firm has 10 million shares outstanding, and you are about to issue 5 million newshares in an IPO. The IPO price has been setat $20 per share, and the underwriting spread is 7%. The IPO is a big success with investors, and the share price rises to $50 on the firs day of trading.
a) How much did your fiM raise from the IPO