Question

Lincoln VC is considering a Series A investment of $4M in NewStage Biopharmaceuticals for 5M shares of common stock. The current stock outstanding is 20M shares. Lincoln VC estimates a $1B exit in 10 years. Use the VC method of valuation and a 50% discount rate. Should Lincoln invest?

Answer 1

price = $4335382.48

so invest made as 5m share value more as amount paid

Step-by-step explanation:

given data

exit value = $1 B

discount rate r = 50 % = 0.5

time t = 10 year

current stock outstanding = 20 M

common stock = 5 M

investment = $4 M

solution

we get here today value that is express as

total value =
`(exit\ value)/((1+r)^t)` .....................1

put here value and we get

total value =
`(1000000000)/((1+0.5)^(10))`

total value = $17341529.92

now we get price per share that is

price per share =
`(total\ value)/(no\ of\ share)`

price per share =
`(17241529.92)/(20000000)`

price per share = 0.86707649

so price for 5 M share is

price = 0.86707649 × 5 M

price = $4335382.48