Considering the future of the Computer industry, current profile of Neverfail Computing has a reasonably predictable potential for growth, within a given time to attract Venture Capitalists. Neverfail Partners posses excellent negotiating skills, and always maintain their casual attitude while negotiating. Ted, CFO worked as a VP of Citibank, his financial skills helped him to evaluate the value of the firm and convince Pacific ridge investor’s that Neverfail Computing is worth $9 million and total investment should be at least $1 million.
The company was initially valued at $47,960 (March-April 1993) according to exhibit 2 on the case study. This was the initial amount invested by two of Neverfail founding employees. 4,796,000 shares of common stock were issued at $0.01 par value.
After Angel Investment:
According to the case, George Lawrence and another Seattle Angel acquired 800,000 shares of convertible preferred stock at $1 per share. This gives a total of $800,000. With this new development, if we assume that the previous 4,796,000 shares of common stock that were originally issued in March of 1993 are now also worth $1 per share, this gives a total of $4,796,000. The total valuation of the company will then be $800,000 + $4,796,000 = $5,596,000. This is the value that we believe to represent the valuation of Neverfail as of November 1994.
After round 1 of VC investment:
Due to the deal with the Pacific Ridge, Neverfail share prices were going for $1.50 per share The Company was valued at $9 million as of December 1994 according to the case study.
Initial value of Pacific ridge investment (December 1995) is:
666,667 * $1.50 + 133,333 * $0.3 = $1,040,000.4 (initial investment, exhibit 7).
If we now value the rest of the company’s stock before venture capitalist investment at $1.50, we have: $1.50 * (800,000 + 4,796,000) = $8,394,000.
Adding this to the Pacific Ridge investment” $1,040,000 + $8,394,000 = $9,434,000.