3 Briefly explain exhibit 72 the investment process from cha

3. Briefly explain exhibit 7-2 the investment process from chapter 7 \"The analysis of VC investmen

Solution

PORTFOLIO COMPANY STATUS OVER TIME, ASSUMING NO PRIVATE COMPANIES AFTER 10 YEARS, ALL FIRST-ROUND INVESTMENTS

multiples in excess of 50 timesthe original investment (the two highest categories). It is important to note, however, that these multiples represent only the time period from the initial investment by the VC to the IPO date. Because VCs usually do not distribute stocks to their LPs for at least six months after the IPO, the actual returns to LPs will differ from those in the SHE database. This six-month return is unlikely to change the big picture of Exhibit 7-3, but it can make a huge difference for specific investments. For example, the most successful VC investment of all time is Benchmark Capital $6.7M investment in eBay. At the time of the eBay IPO in September 1998, eBay’s stock was priced at $18 per share. The first trade on September 24 occurred at $54 per share, and the Benchmark investment was valued at $416M. By the time Benchmark started to distribute this stock to its LPs six months later, eBay had risen to a (split-adjusted) price above $600 per share, and the value of the overall stake (GPs 1 LPs) was $5.1B