forecasting period (Yr 4), Rick and the VC expect CFs to grow by 3.5% per

1. A VC investor believes an 10X return in NLT 5 years is an appropriate return for the risk associated with this investment. The company has just begun generating revenue, and it does not expect to generate positive Cash Flow (CF) until Year 2. Discreet Cash Flow projections prepared from pro forma financial statements are presented below. After the discreet forecasting period (Yr 4), Rick and the VC expect CFs to grow by 3.5% per year in perpetuity. 7. Your start-up company has been funded as follows: The family loans carry a 14% coupon cumulative simple interest rate; however the company was only able to pay $50,000 interest in Year 1 and $ 80,000 interest in Year 3. In Year 6 the company is considering a $31,000,000 purchase offer from larger competitor. Round #1 and Round #2 investors hold CONVERTIBLE, fully PARTICIPATING Preferred Stock. Participation is in the %’s indicated above. Round #1 Shares earn 8% CUMULATIVE annual Dividends; and Round #2 Shares earn 6% CUMULATIVE annual Dividends. No Dividends have been paid prior to the Sales Transaction. Assume preference will be paid in order of investment (i.e Round 1 gets paid first) How will the net sale proceeds be distributed to each stakeholder and what are their rates of returns assuming the deal closes during Year 6? Family lenders: Round 1 Investors: Round 2 Investors: Founders: 8. STARTUP Analysis Startup BuffCo (SB) is a corporation organized in Delaware. SB makes basketball coaching software that automatically generates powerful coaching drills and game plans based upon deep data analysis of team and individual statistics. The software works well. It is especially growing in popularity among NBA and Division I college programs where statistical data is extensive. Availability of a wealth of data makes the software’s analyses more powerful. The software is less useful where less data is readily available, such as the high school and club levels. In September 2003, SB raised $1 million from an angel investor, Rich Uncle Walseth (RUW). SB’s sole founder, Ceal Barry, is CEO and SB is her first startup. Barry offered RUW the “same kind of stock that I own – common stock.” RUW knew a lot about basketball, not so much about investing, and was happy to receive common stock and a $9 million pre-money valuation for his SB investment. Startup BuffCo made progress after the Rich Uncle Walseth angel investment, however, additional fundraising was difficult. On the verge of going bust, in December 2005, SB raised $2 million from Boyle Ventures (BV) on a $6 million pre-money valuation. BV is a $50 million fund raised in 2003. The round was not syndicated and BV is the sole owner of the Series A preferred stock. BV received Series A preferred stock with a seat on the board of directors, standard protective provisions, and a 1x liquidation preference that is participating up to a 3x cap. The lead general partner from BV, Burdie Halderson (BH), sits on SB’s three-person board, along with the CEO founder Ceal Barry, and angel investor RUW. Boyle Ventures’ cash infusion and Burdie Halderson’s sage advice helped Startup BuffCo finally find its footing. CEO Barry, angel RUW, and BV to this day remain SB’s only shareholders. In June 2013, Startup BuffCo received a $10 million acquisition offer from Isiah Thomas Corp. (IT). IT offered to pay cash in exchange for all of SB’s stock. SB rejected IT’s acquisition offer. Startup BuffCo’s trajectory is trending well. It won’t explode into a huge company anytime soon, however, it has a valuable product that is carving out its own niche. On December 10, 2013, SB received a $22 million offer from Knight Inc. (KI). KI offered $22 million cash in exchange for all of SB stock. The KI purchase offer is as follows: Questions