Venture Capital Method

(w/ Multiple Financing Rounds)

vcmethod.com

Exit Value 1 $25,000,000

Number of existing shares (founders) 2 1,000,000

Round 1 Round 2
Valuation at exit 3 V
Compound discount rate 4 (1+R) 3.60 1.40
Investment amount 5 I $3,000,000 $2,000,000
Number of existing shares 6 x 1,000,000 3,135,593
Post-Money 7 POST $4,404,762 $17,857,143
Pre-Money 8 PRE $1,404,762 $15,857,143
Ownership fraction of investors 9 F 68.11% 11.20%
Ownership fraction of previous round 1-F 31.89% 88.80%
Number of new shares 10 y 2,135,593 395,480
Total shares issued 3,135,593 3,531,073
Price per share 11 p $1.40 $5.06

Entrepreneurs:
Ownership shares 1,000,000 1,000,000
Ownership percentage 31.89% 28.32%
Wealth $1,404,762 $5,057,143
First Round:
Ownership shares 2,135,593 2,135,593
Ownership percentage 68.11% 60.48%
Wealth $3,000,000 $10,800,000
Second Round:
Ownership shares 395,480
Ownership percentage 11.20%
Wealth $2,000,000

Notes:
1 Terminal Value (at time of exit)
2 Number of existing shares (owned by the entrepreneurs)
3 Valuation of company
The compound at rate
discount the time of is
(1+R) event (financing
the product or exit)
of the discount rates
4 (1+r) between the time of two valuation events
5 Amount of investment per round
6 Number of existing shares (prior to financing event)
7 Post-Money Valuation: POST = V/(1+R)
8 Pre-Money Valuation: PRE = POST - I
9 Required
Number ofownership
shares thefraction for the
investors investor:
require F = I /their
to achieve POST desired
10 ownership fraction: y = x[F/(1-F)]
11 Price per share: p = I / y
 Discount rates per year. For calculating the compound discount rate
12 (1+R).
Use the product of the discount rates (1+r) to calculate the compound
V1.0 13 discount rates (1+R) used in [4].
 (?)

Disc Rate:
Time of Exit Year 1 2 3 4
$25,000,000 12 r 60% 50% 50% 40%
13 (1+r) 1.60 1.50 1.50 1.40

3,531,073
$7.08

1,000,000
28.32%
$7,080,000

2,135,593
60.48%
$15,120,000

395,480
11.20%
$2,800,000

e entrepreneurs)
nt (financing
e product or exit)
of the discount rates
events

ncing event)
)

estor: F = I /their
to achieve POST desired
g the compound discount rate
+r) to calculate the compound