VC Method with Multiple Rounds of Financing

CFA Level II
#1

Anyone bothering to read the appendix and understand multiple rounds of financing? I am sticking to just knowing the inputs into the VC method and IRR method

#2

This is low on my priority list but that mean’s it will be on the exam for sure.

#3

I would try and understand it. It’s more of a concept, and not formulaic so it could easily be on the exam. If you walk through 1 or 2 examples it will make perfect sense.

#4

I hope to have a article on this on my website by next week. One of my Level II candidates said that I promised to write one. I don’t recall that promise.

#5

I am taking the risk of it not being on the exam… I have way too much other crap in my head that Im just not going to bother…

#6

Probably going to punt on that as well. If I recall it doesn’t seem too difficult reading through the blue box example but … much more low hanging fruit elsewhere

#7

It’s actually quite simple. Just apply the same logic twice and you will have the answer.

#8

I’m not sure what you mean by appendix, but in schweser it’s explained quite well:

Step 1: Calculate the Post money value for second round of financing (PV of exit value at the time of the second round of financing)

Step 2: Calculate Pre money value for second round of financing (Post - second round investment)

Step 3: Calculate the Post money value for first round of financing (PV of Pre money value of second round of financing)

The rest of the steps are figuring out the fractional ownership and share price the way you already know how for one round of financing with one exception, number of shares of the second roud of financing is calculated as: (# of shares of founders + # shares from first round of financing)* (fractional ownership from second round of financing/ 1 - fractional ownership from the second round of financing). Also the first round of financing has its fractional ownership diluted: new fractional ownership from first round of financing = fractional ownership from round 1*(1-fractional ownership from round 2).

#9

Fairly straight forward. Assume its 2 rounds but you can apply the same principle:

  1. Find POST2 value = PV of EXIT

  2. Find PRE2 = POST2- INV2

3.Find POST1 =PV of PRE2

  1. Find PRE1 = POST1 - INV1