(Solution) - Suppose EBV is considering a 5M Series A -(2025 Original AI-Free Solution)

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Suppose EBV is considering a $5M Series A investment in Newco. EBV proposes to structure the investment as RP with APP of $4M plus 5M shares of common stock. (We refer to this basket of RP plus common as ?Series A?.) The employees of Newco have claims on 15M shares of common stock. Following the Series A investment, Newco will have 20M common shares outstanding.
(a) Compute the LP cost for this investment.
(b) Solve for the LP valuation equation for this investment.
(c) Suppose that total valuation is $30M. What is the LP valuation?
(d) Find the breakeven valuation for the investment under base-case assumptions.
(e) Perform a sensitivity analysis for this breakeven valuation.