Million shares issued and outstanding

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A private firm has 3 million shares issued and outstanding. A Venture Capitalist (VC) investor is considering investing $2 million by purchasing convertible participating preferred shares with a purchase price and a conversion price of $2.00. The VC investor believes the firm will be sold for a total firm value of $20 millionin 4 years and wants to run a scenario analysis to determine which terms to add to the preferred share term sheet. Advise the VC investor regarding the amount of capital they will receive, as well as the InternalRate of Return (IRR) the VC will earn, if the firm is indeed sold for $20 million in 4 years under the following two scenarios:

1. VC has a 1X liquidation preference with full participation and no cap

2. VC has a 2X liquidation preference with participation capped at 3X the investment amount

Reference no: EM133072004

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