Question

You invest $50k in a startup’s seed round using a convertible note with a pre-money valuation of $5M, 20% discount. Converts in 2 years, compounds daily (365), earns 8% annually.

There are 1 million share outstanding. What is the unrealized return, IRR and Cash on Cash Multiple? Valuation Cap is $1.5 million.

Question 1: Future value of convertible notes. USE 2 decimals.

Question 2: Original share price

Question 3: Number of shares the convertible notes holder receive. Use 3 decimals

Question 4: What is IRR?

Question 5: What is Cash on Cash multiple? Use 2 decimlas

Answer 1

​​​​​​15,00,00,00,000/5,00,00,00,000=0.3

so we would convert the loan at an effective price of a share

50,000/0 3=and thus receivefor its investment 1,66,666.667

future value of convertible shares 0.30 per share

original share price 1,66,666.667

as there are outstanding shares of rs

50,000/0.8=62500

=62500+15,00,00,00,000+1,00,000

=15,00,01,62,500 number of shares the convertible share holder would receive

IRR(Internal rate of return)

Internal Rate Of Return

Internal Rate Of Return is a method of calculating an investment rate of return. The term internal refers to the fact the calculation excludes ,external factors such as cost of capital or financial risk it is is also called the discounted cash flow of return

here£refers to standard deviation

NPV=£(Can/1+r)^n=0

=50,000/1+0.08)^2

=23,148

Cash on Cash multiple is the cash on Cash (coc return) Also called the equity dividend rate,The cash on Cash return is calculated by dividing the cash flow ,( the net operating income)(before tax) by the amount of cash initially invested.

23,148/50,000

0.46