1)You have been hired as employee number 20 of a start-up company and have been offered options as a portion of your compensation. The options vest over 4 years, with 25% vesting at the end of the first year of your employment and the remaining 75% vesting monthly over the next three years. If you quit to join a new company halfway through your third year of employment (so you were employed for 2 ½ years), then what percentage of your options have vested? (to a tenth of a percent).
__________
2)You have been granted options for 25,000 shares with an exercise price of $10 per share. If in the future you are fully vested, and if you cashed out your options for what they are worth on a net basis, what total net value did you receive if the stock price was $30 per share?
3)A company prices its IPO of 120 million shares through an underwritten offering at a price to the public of $20 per share. 100 million shares are being sold by the company and 20 million shares are being sold by selling shareholders. The underwriting discount is 5%. The underwriters are granted an over-allotment option covering 15% of the shares sold. The shares immediately trade up to $25 per share in the first day of trading. Answer the following questions:
The price per share to the public is: _____
The price per share paid by the underwriters is: _____
The total proceeds to the company (before option) is: _____
The total proceeds to the selling shareholders is: _____
If the shares remain above $25 per share, is it likely that the
underwriters will exercise the over-allotment option? (yes or no) _____
4)Consider a publicly traded company that has 10 million shares outstanding and they trade at $18 per share. The company also has EBITDA of $20 million, $60 million of total debt and $20 million in cash.
The total equity value of the company is: __________
The Total Enterprise Value is: __________
And the company’s valuation as a multiple of EBITDA is: __________
5)If you invest $10,000 today and earn a 20% annual internal rate of return (IRR) over five years (with all of the proceeds received at the end of the fifth year), then the amount you will receive at the end of the fifth year is:
__________
6)How much would you pay today for an investment offering a lump sum of $100,000 in five years if you hoped to earn an annual rate of return of 25%?
__________
7)You invest $300,000 today and receive $800,000 cash proceeds at the end of five years. What is your internal rate of return on this investment? (to a tenth of a percent)
__________
8)In the prior question, which of the following changes would result in a higher IRR, assuming the other facts remain the same?
I.The initial cash outflow was $250,000
II. The cash inflow occurred in year 6 instead of year 5
III. The cash inflow in year 5 was $900,000
IV. One half of the $800,000 inflow occurred in year 4 and on- half occurred in year 5 (so $400,000 in year 4 and $400,000 in year 5)
A.I and III
B.I, III, and IV
C.I, II, and III
D.III and IV
9)You have started a new business and are looking for some start-up capital. You are in discussions with a venture angel, and you agree that for a $3 million investment, the VC investor will get a 20% ownership percentage of the company.
What is the post-money value of the company? __________
What is the pre-money value of the company? __________
10)You are considering making a venture capital investment in a start-up company that is planning on using blockchain technology in a new transaction processing platform. You estimate that it will take $4 million for the company to become cash flow positive at the end of four (4) years, at which point the company will be worth $100 million. If you are targeting a 35% annual internal rate of return on this investment, then what percentage ownership of the company will you demand for your $4 million investment?
__________
11) If in the above question, you believe that the company will need to sell an additional 20% of the company in the future before it becomes cash flow positive, then what percentage of the company will you need to own now to achieve your desired return. Total company will still be worth $100 million at the end of five years, but there will be 20% dilution from the nest round of financing.)
__________
12)If you are a minority investor (less than 50% ownership position in a company), then what contractual provision might you want to allow you to participate in a private sale of stock initiated by the majority shareholder?
A.Demand Registration Rights
B.Drag-along rights
C.Tag-along rights
D.Veto rights on major corporate decisions.
13)If you are a VC investor in a company controlled by the founding entrepreneur, then what contractual provision might you want to give you the right to invest in future rounds of financing of the company?
A.Anti-dilution provision
B.Pre-emptive rights
C.Piggy back registration rights
D.Tag-along rights
14)Your venture capital firm is considering making a $5 million investment in a late stage venture investment to bring the company to profitability. You expect the company to be worth $100 million in four (4) years, and you are willing to make your investment in the form of common stock for a 15% ownership position in the company.
Assuming that you are able to exit your investment in four years at the $100 million total company valuation, then:
Your proceeds would be: __________
And your IRR would be: __________
15)All of the following are advantages of raising equity through a private placement rather than through a public offering except:
A.The issuer does not have to comply with the anti-fraud provisions of the securities laws
B.The issuer does not have to file with the SEC
C.Typically has a lower issuance cost than a public offering
D.Typically can be a quicker process than a public offering
16)All of the following are provisions of the JOBS Act except:
A.Slightly easier IPO process for Emerging Growth Companies
B.Removal of prohibition on general solicitation and advertising in private placements
C.Companies may go public without filing with the SEC
D.A new filing exemption for “crowdfund” offerings
17)For each stage of financing write the letter for the best match with the stage of business development. One match for each
Bootstrap financing ___ A. Product and market validation; significant revenues
Seed Round ___ B. product in beta test; some customer validation
Series A or B round ___ C. Business idea; some initial product development
Institutional growth capital ___ D. Some progress with product, maybe alpha testing
18)All of the following are advantages of an IPO except:
A.Can raise significant amounts of capital
B.Can provide liquidity for existing shareholders
C.Can provide a liquid stock as currency for future acquisitions
D.Company must publicly disclose much of its formerly confidential information
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