FIN 500W Washington University Carna Robotica Case Study

Required Readings

1. Venture Capital Deal Algebra by Brad Feld (at Feld Thoughts blog) | Foundry Group
2. Understanding Valuation: A Venture Investor’s Perspective by Callow, A Dana Jr. and Michael Larson
   Boston Millennia Partners White Paper
3. What Is A Good VC Return by Fred Wilson (at AVC blog) | Union Square Ventures
4. Funds Flail at Valuation by Grind, Kirsten | Wall Street Journal | Oct. 29, 2015

Case Materials

Carna Robotics Business Plan

Carna Robotics Audited Financials

Review the balance sheet, income statement, and cash flow statement of Carna Robotics, and the contents of footnote 9 regarding the company’s common and convertible preferred stock. The remainder of the financial statements are provided solely for completeness and future reference.

Case Background

Based upon your recommendation after a review of the business plan, your partner has agreed that the Carna Robotics opportunity may align to the investment strategy of your fund, and has asked you to conduct additional analysis. He is particularly focused on the valuation of the most recent financing and the ability to project long-term revenue and profitability.

Homework Instructions

After reading the required readings and case background, and reviewing the assigned portions of the Carna Robotics business plan and financial statements, use those materials, your own knowledge, and any further research you may wish to conduct, to answer the following questions.

Please be concise in your responses, focusing on key facts and interpretations rather than repeating extensive contents of the readings. The maximum length of your entire response is limited to one page of 12-point text double-spaced. (It is not necessary to repeat the questions in your response.) You may attach an additional page of calculations supporting your answer if you choose.

When solving the homework, please note the following regarding premoney and postmoney valuations:

• The pre-money of a successive round will not necessarily be (in fact most often will not be) the same as the post-money valuation of the prior round.
• The share price of the successive round will not necessarily be (in fact most often will not be) the same as the share price of the prior round.

Homework Assignment

1. Unrelated to the Carna Robotics case, consider a planned series B financing in a business that has the following capitalization:

   Founders – 950,000 common shares
   Current Management – 300,000 common shares
   Series A Investor – 750,000 Series A preferred shares
   Total shares – 2,000,000 fully diluted shares

   The Series A investor provided $1 million of financing. Current management was hired in connection with the Series A financing; assume their shares were issued immediately prior to the closing of Series A.

   Your venture fund plan to provide a $3 million Series B financing and have settled upon a $7 million pre-money valuation. Immediately prior to the Series B financing (in other words, at the sole expense of the other pre-existing shareholders), you want to increase current management’s ownership share such that it will constitute 17% of the post-transaction capitalization.

   Please calculate the following:

   (i) The price per share of the Series A financing.
   (ii) The postmoney valuation of the Series A financing.
   (iii) The premoney valuation of the Series A financing.
   (iv) The postmoney valuation of the Series B financing.
   (v) The percentage ownership you will acquire in the Series B financing.
   (vi) The percentage ownership that will be retained by the combination of the founders, the current management, and the Series A investor.
   (vii) The number of additional shares that should be issued to management.
   (viii) The number of shares that you should purchase in the Series B financing.
   (ix) The price per share of the Series B financing.

2. Regarding Carna Robotics, estimate the pre- and post-money valuation of the Series E preferred stock financing, treating series E, E1, and E2 as a single series and financing event.
3. Propose a method for estimate Carna Robotics’ revenue and profit over the next five years. It is not necessary to develop an actual projection; only to specify the inputs, metrics and/or methods that you would use to do so. You may submit this answer in narrative or tabular numerical form, as you prefer.
4. Did any of the information contained in the detailed financial statements and capitalization information cause you to adjust your opinion of the investment opportunity? Please explain why or why not.