Draw payoff diagrams, Marketing Management

Assignment Help:

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?

Related Discussions:- Draw payoff diagrams

Traditional marketing communication strategies, Question: a) Describe ...

Question: a) Describe the differences between traditional marketing communication strategies and service business communication strategies. b) Show the key planning conside

Case study, my assignment (case study ) on selected organisation

my assignment (case study ) on selected organisation

Marketing mix, This comprises the marketing tools and techniques an organiz...

This comprises the marketing tools and techniques an organization uses to achieve its targets relative to a specific goal market audience.

Case study, considering the concept of product life cycle where would you p...

considering the concept of product life cycle where would you put video games in thier life cycle

Ask, What are the significant factors that have led to the success of Shopp...

What are the significant factors that have led to the success of Shoppers? Stop?

MKT 421 Final Exam - 2014, download here http://helpfinalexams.com/exam/91...

download here http://helpfinalexams.com/exam/91/MKT-421-Final-Exam----2014

Explain objective and task method, Q. Objective and Task Method? This s...

Q. Objective and Task Method? This scheme considers advertising as an investment and a mean to achieve long-term business objectives. Krick Patrick has defined objectives as we

Define the term new brands, Define the term New Brands. New Brands: ...

Define the term New Brands. New Brands: A company may make a new brand name while it enters a new brand category for that none of the current brand of company names are a

Discuss the buyer decision process, Question 1: Consumer buying behavio...

Question 1: Consumer buying behaviour is based on the degree of buyer involvement and differences among brands. Assume that you are in the process of buying the latest cruise

Business process, marketing business process of automobiles company.

marketing business process of automobiles company.

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd