An entrepreneur (E) and a VC make a deal whereby E receives 50.05% (ie, control)

Question

An entrepreneur (E) and a VC make a deal whereby E receives 50.05% (ie, control) of an SU (startup) and VC receives 49.95%. VC pays E $1.5M for the original transaction. Various deal structures between E and VC were considered. Shortly after this original transaction, another VC, VC2, makes a bid to buy SU. Two different TV (transaction values) are considered, $2M and $5M 2. a. What are the payouts to E and VC for these two TV for each of the deal structures. Provide an overview of the payouts of both E and VC for each of these two TV's and each of the six deal structures. b.

Explanation / Answer

2)a)For the first deal,

Payout to E=50.05% of $2 mn=$1001000

Payout to VC=49.95% of $2mn=$999000

For the second deal,

Payout to E=50.05% of $5mn=$2502500

Payout to VC=49.95% of $5mn=$2497500.

Thank you.

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