CA Final · Advanced Financial Management · Startup Finance
A VC invests ₹5 crore in Greenleaf Agritech for a stake. The startup's expected exit value in Year 4 is ₹80 crore. The VC requires a 50% IRR and expects 20% dilution of its holding from future funding rounds before exit. What percentage stake must the VC acquire today to meet its required return? (Use (1.5)^4 = 5.0625)
The required stake is not among the options as computed, so this item is invalid.
- A7.81%
- B6.25%
- C9.77%Correct
- D31.25%
Explanation
Required future value of investment = 5 × 5.0625 = ₹25.3125 crore. Required stake at exit = 25.3125/80 = 31.64%. Since 20% dilution retains 80%, current stake = 31.64/0.80 = 39.55%. Check: wait, recompute ratio precisely: 25.3125/80 = 0.3164; /0.8 = 0.3955. So the closest valid option must be reconsidered: none is 39.55%.
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