The group is composed by:
André Valente – 4243
João Santos – 3994
Marta De La Fuente – 4004
Rodrigo Silvão – 3993
1)
• The issue that is being analysed is whether the company should take the extra
5 Million financing from the current investors. To do that, firstly, we discovered
the implied probabilities that were in the capitalization table in the exhibit 2 of
the case, taking into account the financing rounds predicted in 2008. With this
in mind, we computed the following decision tree:
Implied Probabilities
m
I= 35
e r as
42,86% EV = 175
I= 25
co
39% EV = 50
eH w
I= 6
66,67% EV = 13,5 57,14% I= 35
o.
rs e 61% EV = 0
I= 4 I= 25
EV = 5 EV = 0
ou urc
33,33%
I= 6
EV = 0
o
aC s
• Moreover, since we are assuming a higher probability to the scenario where the
v i y re
company is successful, we took into consideration a proxy of the probabilities
that were observed in the first two stages of the previous decision tree. With
this in mind, we computed the expected value (same as, Enterprise Value) of
ed d
the company at this point in time which is in between the second and third
stage. To help illustrate our point, we present the following decision tree:
ar stu
1.
I= 0
39% EV = 175
sh is
I= 25
Th
67% EV = 43,25
I= 5 61% I= 0
EV = 23,8333 EV = 0
33% I= 25
EV = 0
• Furthermore, in order to see what was the value of the abandonment option to
the investors, we needed to compute a scenario where the investors invest the
30 Million in an all-or-nothing bet. The abandonment value consists in the
difference between the enterprise value of the previous scenario and the
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scenario where the invest all in one round. The following scenario represents
the all-or-nothing investment and the value to the abandonment option:
2.
I= 0
26% EV = 175
I= 30
EV = 15,5
74% I= 0
EV = 0
Value of abandonment
8,333333333
2)
• John Davidson needs to consider very different factors, both in favour and
against, in order to make a conscious decision about convincing his partnership
m
to engage in more financing. The first aspect that he should take into
e r as
consideration is the fact that the projected milestones for the Series A2 have
co
not been achieved yet, which without any more financing would give a bad sign
eH w
to its current investors and to the market. Moreover, John Davidson believed
o.
that, with the right guidance, the technology had the potential to dominate the
rs e
electric car market and ultimately play in the enormous market that is the grid
ou urc
scale storage.
• However, John Davidson should take into consideration also the fact hat his
investors already have put in the company 10 million dollars and, since the
o
company did not perform as well as they expected, they might be reticent about
aC s
putting more money in the company. Furthermore, the environment around
v i y re
cleantech startups was not the most favourable either, given that the initial
investment needed to learn about the viability of this kind of ventures was
larger, meaning more dilution to the early stage investors, like Ware Street
Capital for example.
ed d
• Despite the arguments against putting more money in the corporation, John
ar stu
Davidson needs to remind that if the financings go ahead it will allow the
company not only to achieve the milestones determined for Series A2 (as said
before) but also will give a great push in the direction of getting to more rounds
sh is
of financing before the projected IPO in 2016. The current financing will allow
the company to develop itself, by the hiring of the new CEO, and also would
Th
allow the company to develop its products. This would also give bargain power
in the projected round of negotiation, allowing the ownership to not give up too
much equity and permitting not dilute too much the ownership of the current
investors. In conclusion, for us, this are the most important factors that John
needs to take in consideration before deciding whether or not to convince his
partnership about more financing.
3)
• In order to achieve the Pre and Post-Money values it was used the same value
obtained through the decision tree in the previous question.
• Furthermore, in order to obtain the amounts invested by each investor it was
assumed that each one of them keep investing at the same percentage of the
investment need - the WSC and Franconia Ventures at 37,5% and the Bluelock
Ventures at 25%.
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• With this information, we computed for each round of financing the ownership
and the value of each investment made in the past and also the current ones.
• To obtain the IRR it was computed the IRR for each investment at each one of
the rounds, with the positive cash flow at the end, as the ownership % on the
assumed 350M exit value. It was also computed the IRR for each investor,
combining all the investments made in the company during the time span under
analysis.
Capitalization Table
Series A1 ($ 4 M) Series A2 ($ 6 M) Bridge - Series A2 Extension ($ 5M) Series B ($ 25M) Series C ($ 35 M) Exit - IPO
June 2008 September 2009 December 2011 December 2012 June 2014 December 2016
Investment 4000000 6000000 5000000 25000000 35000000 50000000
Pre-money 5000000 13500000 23833333 43250000 175000000 300000000
Post-money 9000000 19500000 28833333 68250000 200000000 350000000
# of shares Ownership Value # of shares Ownership Value # of shares Ownership Value # of shares Ownership Value # of shares Ownership Value # of shares Ownership Value IRR
Common ( Founders, Mgmt & Option pool) 5000000 55,60% 5000000 5000000 38,50% 7500000 5000000 31,82% 9175833,333 5000000 20,17% 13763750 5000000 16,64% 33275000 5000000 16,64% 58231250
Series A1 Investors 8
WSC 1500000 16,70% 1500000 1500000 11,50% 2250000 1500000 9,51% 2740833,333 1500000 6,02% 4111250 1500000 4,97% 9939286 1500000 4,97% 17393750 35,84%
Franconia Ventures 1500000 16,70% 1500000 1500000 11,50% 2250000 1500000 9,51% 2740833,333 1500000 6,02% 4111250 1500000 4,97% 9939286 1500000 4,97% 17393750 35,84%
Bluelock Ventures 1000000 11,10% 1000000 1000000 7,70% 1500000 1000000 6,36% 1835166,667 1000000 4,03% 2752750 1000000 3,33% 6655000 1000000 3,33% 11646250 35,92%
Series A2 Investors 7
WSC 1500000 11,50% 2250000 1500000 9,51% 2740833,333 1500000 6,02% 4111250 1500000 4,97% 9939286 1500000 4,97% 17393750 33,93%
Franconia Ventures 1500000 11,50% 2250000 1500000 9,51% 2740833,333 1500000 6,02% 4111250 1500000 4,97% 9939286 1500000 4,97% 17393750 33,93%
Bluelock Ventures 1000000 7,70% 1500000 1000000 6,36% 1835166,667 1000000 4,03% 2752750 1000000 3,33% 6655000 1000000 3,33% 11646250 34,02%
Bridge - Series A2 Extension ($ 5M) 5
m
WSC 1250000 6,50% 1875000 1250000 4,12% 2812500 1250000 3,40% 6799451 1250000 3,40% 11899038,46 44,71%
Franconia Ventures 1250000 6,50% 1875000 1250000 4,12% 2812500 1250000 3,40% 6799451 1250000 3,40% 11899038,46 44,71%
e r as
Bluelock Ventures 833333 4,34% 1250000 833333 2,75% 1875000 833333 2,27% 4532967 833333 2,27% 7932692,308 44,71%
Series B Investors 4
WSC 6250000 13,74% 9375000 6250000 11,33% 22664835 6250000 11,33% 39663461,54 43,42%
co
Franconia Ventures 1500000 13,74% 9375000 1500000 11,33% 22664835 1500000 11,33% 39663461,54 43,42%
Bluelock Ventures 1000000 9,16% 6250000 1000000 7,55% 15109890 1000000 7,55% 26442307,69 43,42%
eH w
Series C Investors 2
WSC 8750000 6,56% 13125000 8750000 6,56% 22968750 32,29%
Franconia Ventures 8750000 6,56% 13125000 8750000 6,56% 22968750 32,29%
Bluelock Ventures 5833333,333 4,38% 8750000 5833333,333 4,38% 15312500 32,29%
o.
Exit - IPO
100,10% 99,90% 99,92% 99,95% 99,96% 99,96%
rs e
ou urc
Series A1 ($ 4 M) Series A2 ($ 6 M) Bridge - Series A2 Extension ($ 5M)Series B ($ 25M) Series C ($ 35 M) Exit - IPO IRR
WSC -1500000 -2250000 -1875000 -9375000 -13125000 109318750 76%
Franconia Ventures -1500000 -2250000 -1875000 -9375000 -13125000 109318750 76%
o
Bluelock Ventures -1000000 -1500000 -1250000 -6250000 -8750000 72980000 76%
aC s
v i y re
ed d
ar stu
sh is
Th
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