What fraction of the company satisfies IRR
John has approached Tribal Ventures with a business idea. Currently, John has incorporated the business and awarded himself 2 million shares. John is looking to raise $4 million in VC funding. Tribal is interested in the deal and have made some assumptions listed below:
The company will achieve the $10 million in earnings in year 5
Tribal needs to make at least 60% IRR on this investment
Tribal would be able to exit at the end of year 5 and the likely P/E multiple of similar companies would be 15x in year 5
The company would NOT need any more funding.
What fraction of the company must Tribal demand to meet its expected IRR?