Spiffyterm Inc Essays

1001 Words Apr 6th, 2013 5 Pages
SpiffyTerm, Inc. | | March 21, 2013 |

SpiffyTerm, Inc. was founded by three MBA students at a prestigious West Coast business school, who were known as Annabella Labella, Krishnuvara Ramakrishna, and Bob Sledge. These three students had founded the new company on the basis of an idea that came to them while they were eating burritos in the school’s cafeteria. They were all convinced that the most recent Internet boom has missed the opportunities that this new technology offered. Their idea involved living creatures on Mars, a really cool Web site, and lots of chocolate chip cookies for the company party. The founders of SpiffyTerm, Inc. had received a term sheet from, Wolf C. Flow, a contact partner at a venture capital firm
…show more content…
was about $18,097,475. The founders obtained their valuation by taking the present value of future cash flows, which is [80,000,000/ (1.45^4)]. After figuring out the valuations using their assumptions, the founders wanted to also do some sensitive analysis. They wanted to know how the valuations would change if the second round of financing required $3 million. In addition, they wanted to know what the valuation would be if they raised $6 million up front with no further round thereafter. First, the founders would have to figure out the valuation with the original plan of $2 million required for the second round of financing. The first round investment was $4 million, which means that the investors acquired a 22.10% ownership. If the second round of financing was $2 million, then the investor’s equity stake would be an additional [2,000,000(1.45^2)]/80,000,000 = 0.05256 or 5.26%. This means that the founders remaining equity stake would be 1-0.2210-0.05256 = 0.7264 or 72.64%. If the second round of financing was $3 million, the investor’s equity stake would be [3,000,000(1.45^2)]/80,000,000 = 0.07882 or 7.88% higher than it was before the second round. This means that the founders remaining equity stake would decrease to 1-0.2210-0.07882 = 0.7008 or 70.1%, and the investors’ stake will increase to 29.98%. If the founders ended up raising $6 million up front with no further round thereafter, then the investor acquired ownership would

Related Documents