Modeling : Case Study

Sea beach angel partners, is an angel investor which invests in start-up companies. They’ve decided to invest using a new instrument called ‘founder friendly notes’.

When Sea Beach invests using ‘founder friendly notes’, they don’t get equity immediately. Instead, they’re promised equity at a x% discount at the next fundraising event of the company.

Create a model that calculates the equity stake of Sea beach after 1 year, given the follwing inputs:

1. Sea beach’s investment

2. Sea beach’s discount rate

3. Start-up’s raise amount after 1 year

4. Start-up’s valuation after 1 year

(assume $1 per share and that no other events happened within the year)

Example: Seabeach invests $90,000 at a discount of 10%. After 1 year, the company raises $500,000 at a valuation of $1,000,000. Hence:

Seabeach’s investement: $90,000

Discount rate: 10%

Value of seabeach's investment after discount: $100,000

Upcoming fundraise: $500,000

Pre money valuation: $1,000,000

Seabeach’s equity stake = 100,000 / 1,500,000 = 6.67%