# Rate of return and the fraction of the company

Suppose that 5 out of 10 investments made by a venture capital (VC) fund result in total

loss, meaning that the return on each of them is -100%. And of the 10 investments, 3

break even, earning a 0% return. Assume that the fund managers require a 40%

compound annual return on their investment and the risk-free rate is 6%.

a) What rate of return must the fund earn on the 2 most successful deals to achieve a

portfolio return equal to expectations?

b) Assume that an entrepreneur is seeking â?¬10 million from this fund which thinks

that the company is likely to be ready to go public in five years. At that time, the

company is expected to have a value of â?¬450 million. What fraction of the

company will the fund request in exchange for its investment? Assume that there

will be no need for additional equity financing before the IPO.

https://brainmass.com/business/initial-public-offering/rate-return-fraction-company-344344

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Suppose that 5 out of 10 investments made by a venture capital (VC) fund result in total loss, meaning that the return on each of them is -100%. And of the 10 investments, 3 break even, earning a 0% return. Assume that the fund managers require a 40% compound annual return on their investment and the risk-free rate is 6%.

a) What rate of ...

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This post shows how to calculate rate of return and the fraction of the company