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EBV is considering a $6M Series A investment in Newco, a telecommunication company. EBV proposes to structure the investment at 5M shares of convertible preferred stock. The founders of Newco, who will continue with the firm, currently hold 10M shares of common stock. Thus, following the Series A investment, Newco will have 10M common shares outstanding and would have 15M shares outstanding upon conversion of the CP. EBV estimate a 30% probability for a successful exit, with an expected exit time in five years. Here are several assumptions that might help to solve the problem: .Newco's management team expects to generate revenue of $120M. . The analyst calculates that in the telecommunications industry the average multiple of successful exit value of IPO to revenue is 2.5. A cost of venture capital is 15%. The average estimate for expected retention rate for Series A investment is 50% Modified VC method Here are additional assumptions that might help to solve the problem: 2. . Size of the EVB fund is $100M Annual fee of 2% for 10 years . Carry interest GP/LP of 20/80 . Expected Gross Value Multiple of the fund is 2.5 8) LP Costs 10) LP Valuations 11) Investment recommendation? .Does EBV need to require more shares to invest? If so, how many? EBV is considering a $6M Series A investment in Newco, a telecommunication company. EBV proposes to structure the investment at 5M shares of convertible preferred stock. The founders of Newco, who will continue with the firm, currently hold 10M shares of common stock. Thus, following the Series A investment, Newco will have 10M common shares outstanding and would have 15M shares outstanding upon conversion of the CP. EBV estimate a 30% probability for a successful exit, with an expected exit time in five years. Here are several assumptions that might help to solve the problem: .Newco's management team expects to generate revenue of $120M. . The analyst calculates that in the telecommunications industry the average multiple of successful exit value of IPO to revenue is 2.5. A cost of venture capital is 15%. The average estimate for expected retention rate for Series A investment is 50% Modified VC method Here are additional assumptions that might help to solve the problem: 2. . Size of the EVB fund is $100M Annual fee of 2% for 10 years . Carry interest GP/LP of 20/80 . Expected Gross Value Multiple of the fund is 2.5 8) LP Costs 10) LP Valuations 11) Investment recommendation? .Does EBV need to require more shares to invest? If so, how many

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