.Please explain the compensation structure of VC and PE firms.

.Name and explain two different types of risks especially relevant to early stage high-potential ventures.

2.Please explain the compensation structure of VC and PE firms.

3.Describe possible explanations for an investor’s decision to convert preferred stock to common stock in connection with a liquidation event for a venture

4.Describe the shortcomings/limitations of the Venture Opportunity Screening (VOS) Model discussed in class. How did we say the Model could be modified (adapted) to make it more useful to entrepreneurs and prospective investors? Remember that many of the comments also apply to the other screening models (New venture template & VOSE)

5.What does it mean that a firm is “Burning Cash”; and how does burning cash relate to the need for external funding in a start-up business?


Marty Jones is negotiating with a Venture Capital Fund for $10 MIL financing for his new venture. Marty is the sole founder and owns 100% of the company’s equity. He is adamant that he must keep a 60% interest in the company after external capital is raised.

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.

Year Cash Flow
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