Draw payoff diagrams, Marketing Management

The venture capital firm called MIT Ventures is considering a $5M first round investment in Brainiac.com. MIT Ventures proposes to structure the investment as 5M shares of convertible preferred stock. The founders of Brainiac.com, who will continue with the firm, currently hold 10M shares of common stock (including the stock option pool). Thus, following the first investment, Brainiac.com will have 10M common shares outstanding. MIT Ventures estimates that a successful exit would be possible in five years and the company would have an exit multiple of 10x sales at that time. The cost of capital of MIT Ventures is 25%.

  1.  Please use the venture capital valuation model to calculate the expected sales in year 5 that would be needed to make it worthwhile for MIT Ventures to invest in Brainiac.com. Remember the exit value is the exit multiples time the company sales in the year of exit.

Now assume that MIT Ventures considers offering Brainiac.com a shareholder contract. However, before settling on one contract, MIT Ventures is considering two alternative structures for their investment:

Structure I: 5M shares of Convertible Preferred (this is the standard VC contract that we discussed in class);

Structure II: Debt ($5M) + 5M shares of common stock;

  1. Please draw separate payoff diagrams to the VC for each of the structures (You should have a total of 2 different payoff Diagrams)
  2. Discuss how these two structures differ in the amount of downside protection they provide for the VC; and the amount of incentives they offer for the founders and for the VC.

Let's assume that MIT Ventures agreed to invest in Brainiac.com using a convertible preferred as in Structure I. However, within one year after the first financing round MIT Ventures finds out that Brainiac.com will need much more capital than initially expected to get to cash flow positive. Therefore, the founders and the VC decide to raise another round of financing for the company. 

  1. Please discuss in general what are the benefits of raising capital earlier versus later in the life-cycle of a start-up firm?
Posted Date: 3/11/2013 5:30:30 AM | Location : United States







Related Discussions:- Draw payoff diagrams, Assignment Help, Ask Question on Draw payoff diagrams, Get Answer, Expert's Help, Draw payoff diagrams Discussions

Write discussion on Draw payoff diagrams
Your posts are moderated
Related Questions
Q. Effect on Standard of Living in aspect of advertising? Advertising has decrease the cost of distribution, production, promoted competition and thus resulted in price reducti

Question: (a) List and discuss with examples the four factors that influence consumer purchase decision. (b) To what extent ‘branding' is important for a product and ho


identifing brand personality in consumers mind

Gathering data depends on nature of data, objective of the data collection and require information. By the help of proposed a new information system the objective is to collect

Question 1: Briefly describe the functionalities of CRM sub modules. List out the benefits of CRM Systems. Functionalities List the benefits  Question 2:

Determine the elements of the marketing mix Promotion is hence one of the elements of the marketing mix and is responsible for communication of the marketing offer to the targe


Advantages of the advertising: 1.       It increases the sales volume: advertising increases the sales volume of the product. Hence mass production is possible. This leads, to

Developing a promotion mix is contingent on many factors, including the type of product and the product''s attributes. Which of the four promotional methods-advertising, personal s