Investing

Venture and growth equity case studies. Hieu Van Nguyen

Each case is an invented software company at a different stage. Move between an early round, a growth round and a late-stage round. Change the assumptions and see ownership, dilution, unit economics, the returns an investor earns and the recommendation that follows. Nothing here comes from a real company or from a course exercise.

What this shows

Cap table and dilution through successive rounds
Unit economics, payback and cohort retention
Valuation by revenue multiple and by the return needed
Returns scenarios and a plain recommendation with the main risks

Sample build: venture and growth equity cases

Three invented software companies at three stages. Each case reads in the order an investment committee does: the company, why now, the numbers, the risks, then the recommendation, which comes from written rules shown on the page.

Invented companies and invented numbers for illustration. Not real companies, and not data from any employer.

The company

Pellwick Labs is an invented company that sells food-safety logging software to commercial kitchens. Cooks record fridge temperatures and cleaning checks on a tablet, and the owner gets a ready inspection file.

Why now

Pellwick Labs has 140 paying kitchens at about $520 a month each, and a regional health authority is moving to digital inspection files next year, which has doubled demo requests in six months.

What to try

Raise the option pool target and watch the founders pay for it while the new investor keeps exactly the same stake.
Raise the SAFE cap step by step and watch the SAFE price switch from the cap to the discount.
Cut the pre-money valuation to $9.0M and the recommendation moves from Invest with conditions to Invest.

Pre-money valuation (counts the SAFE shares and the pool top-up)$12.0M

New money raised$3.0M

Option pool target, share of the company after the round12%

SAFE amount, paid earlier$0.6M

SAFE valuation cap (post-money)$6.0M

SAFE discount to the round price20%

New investor owns

20.0%

The raise divided by post-money

Price per share

$1.13

Post-money divided by all shares

SAFE converts at

$0.60

Set by the valuation cap

Founders together

60.4%

80.0% before the round

Who owns what, before and after the round

Before means after the SAFE converts and before the new money and the pool top-up. Diluted by is the share of the before stake that has been diluted away. Every existing holder is diluted by the same share of what it had, so the points differ only because the starting stakes differ. Pool top-up cost is the part of the loss caused by the top-up alone, in percentage points of the company.

Cap table
Holder	Before	After	Pool top-up cost	Diluted by	Shares
Founder A	50.0%	37.8%	2.2 pts	24.4%	5,000,000
Founder B	30.0%	22.7%	1.3 pts	24.4%	3,000,000
Option pool (existing)	10.0%	7.6%	0.4 pts	24.4%	1,000,000
Option pool (top-up)	none	4.4%	none	none	588,235
SAFE holder	10.0%	7.6%	0.4 pts	24.4%	1,000,000
New investor	none	20.0%	none	none	2,647,059
Total	100.0%	100.0%			13,235,294

How the SAFE converted

Price per share
Measure	Price
Round price	$1.13
Price from the cap	$0.60
Price from the discount	$0.91
SAFE converts at the lower (cap)	$0.60

A SAFE (simple agreement for future equity) is money paid earlier in return for shares at the next priced round. A post-money SAFE converts to its amount divided by the cap, counted before the new round: $0.6M divided by $6.0M is 10.0%. The holder gets whichever of the cap price or the discounted price is lower.

Who pays for the option pool

Plain reading

The pool is topped up to 12% of the company after the round, which adds 588,235 shares worth $0.67M at the round price. Those shares count in the pre-money, so the new investor still owns exactly 20.0%. Existing holders pay for the top-up instead: the two founders give up 3.6 points together, the SAFE holder gives up 0.4 and the existing pool gives up 0.4. The quoted pre-money is $12.0M, but after paying for the top-up it is effectively $11.33M.

Checks. Ownership adds to 100.0%, the new investor owns exactly the raise divided by post-money, price times shares equals post-money, and the SAFE converted at the better of its two prices. All checks pass.

Recommendation

Invest with conditions

How the label is chosen: count the rules not met. None is Invest, one is Invest with conditions, two or more is Pass. A 10.0x target return is assumed, with 40% of the stake given up in later rounds.

Rules behind the recommendation
Rule	Now and result
Room to earn the returnThe exit needed for 10.0x after 40% dilution from later rounds is at most $200.0M	$250.0MNot met
Size of the stakeThe new investor owns at least 15% after the round	20.0%Met
Founders keep control and motivationThe founders together own at least 50% after the round	60.4%Met

At a $12.0M pre-money, $3.0M buys 20.0% of Pellwick Labs at $1.13 a share, the SAFE converts under the cap, at $0.60 a share against $0.91 from the discount, and a 10.0x return needs an exit of $250.0M.
The main risk is price: the exit needed for a 10.0x return is $250.0M, against a realistic ceiling of $200.0M for this niche.
Recommendation: Invest with conditions, and it becomes Invest if the pre-money is $9.0M or lower at this raise.

$3.0M at a $12.0M pre-money gives the new investor 20.0% and leaves the founders with 60.4%, so the recommendation is Invest with conditions.

The company

Dunmere is an invented company that sells scheduling and billing software to dispatchers at small trucking fleets. Customers pay a yearly subscription and tend to add seats and modules as their fleet grows. The yearly value of all subscriptions in force is its annual recurring revenue (ARR), the number investors price it on.

Why now

Dunmere has customers in every region and is now selling to larger fleets, which needs a bigger sales team and a new round to pay for it.

What to try

Raise churn and watch customer value, the cohort table and the next-round test move together.
Raise CAC above $60.8K and payback goes over 24 months.
Cut the ARR multiple to 7.1x and the price rule passes. Raise it and watch how much growth the price needs.
Set spend on each existing customer to $0 and see how much leaving that line out would flatter the burn multiple and the Rule of 40.

Churn each year, share of starting ARR10%

Expansion each year, share of starting ARR15%

Cost to win one customer (CAC)$56K

Spend on each existing customer, a year$3.0K

Average contract value, a year$40K

Gross margin76%

ARR growth over the next 12 months50%

ARR multiple paid in this round9.0x

LTV to CAC

5.4x

A customer is worth $304K of gross profit over its life

CAC payback (months)

22.1

Months of gross profit to earn back the cost of a customer

Net revenue retention

105.0%

Starting ARR less churn plus expansion, as a share of starting ARR

Burn multiple

0.76x

Cash burned for each dollar of new ARR, after all sales costs

Rule of 40

Growth plus operating margin, in points

ARR in 12 months

$54.0M

Up from $36.0M today

Cohort retention by age

Show

Revenue kept, by cohort
Signed in	0	1	2	3	4	5	6	7
Quarter 1 (oldest)	100.0%	101.2%	102.5%	103.7%	105.0%	106.3%	107.6%	108.9%
Quarter 2	100.0%	101.2%	102.5%	103.7%	105.0%	106.3%	107.6%
Quarter 3	100.0%	101.2%	102.5%	103.7%	105.0%	106.3%
Quarter 4	100.0%	101.2%	102.5%	103.7%	105.0%
Quarter 5	100.0%	101.2%	102.5%	103.7%
Quarter 6	100.0%	101.2%	102.5%
Quarter 7	100.0%	101.2%
Quarter 8 (newest)	100.0%

Each cell is the revenue still billed from a signing-quarter cohort, as a share of its first quarter. Columns count quarters since signing. Every row follows the same rule: each year a cohort loses 10% of its starting revenue to churn and adds 15% of it through expansion, so it is worth 105% of its starting revenue a year later, compounded evenly over the four quarters. Older cohorts have simply been observed for longer, so the table is a triangle.

ARR bridge, next 12 months

From ARR today to ARR in a year
Step	$M
ARR today	$36.0M
Lost to churn	-$3.6M
Added by expansion	$5.4M
New customers (405)	$16.2M
ARR in 12 months	$54.0M

Cost of that growth

Year-ahead cash view
Line	$M
Revenue (average ARR over the year)	$45.0M
Gross profit	$34.2M
Winning 405 new customers	-$22.7M
Looking after 900 existing customers	-$2.7M
Research and admin	-$22.5M
Operating income, burn if negative	-$13.7M

Winning new customers costs the number won times CAC. Looking after the customers at the start of the year costs $3.0K each. Both count in operating income and in burn. Research and admin is held at 50% of revenue.

Valuation: the ARR multiple against the Rule of 40

What the market pays for ARR, by Rule of 40 score

Market multiple by Rule of 40 score
Rule of 40 score	Multiple	Value of today's ARR
0	2.0x	$72M
10	4.5x	$162M
20	7.0x	$252M
30	9.5x	$342M
40	12.0x	$432M
50	14.5x	$522M
60	17.0x	$612M
70	19.5x	$702M
80	22.0x	$792M

The Rule of 40 score is growth plus operating margin, in points. The case assumes the market pays 2.0x ARR at a score of zero, plus 0.25x for every point of score, and never less than 1.0x. This company grows 50% with an operating margin of -30.4%, a score of 19.6, so the market line gives 6.9x. This round pays 9.0x, 30% above the line, so the post-money valuation is $324M and $45M of new money buys 13.9%.

What the company must reach by the next round

The investor wants 3.0x its money over 4 years. After 2 years it should be on track for 1.73x, and the next round will take 12% of its stake, so the next round has to price at 1.97x this one. Growth is assumed to slow to 70% of this year's rate by then, and the case assumes the Rule of 40 score holds at 19.6: as growth slows the operating margin moves to -15.4%, so the market pays the same 6.9x as today.

Next-round test
Measure	Value
Valuation the next round must reach	$638M
Growth expected in year two	35%
Operating margin assumed then	-15.4%
Market multiple at the next round (same score)	6.9x
ARR needed at the next round	$92.4M
ARR this plan reaches	$72.9M
Highest ARR multiple that still works	7.1x
First-year growth the price needs	64.2%

Checks. The ARR bridge adds up from today's ARR to next year's, new customers times contract value equals new ARR, the two sales lines add to total sales cost, gross profit less all costs equals operating income, and every cohort starts at 100%. All checks pass.

Recommendation

Invest with conditions

How the label is chosen: count the rules not met. None is Invest, one is Invest with conditions, two or more is Pass.

Rules behind the recommendation
Rule	Now and result
Customer value against costLTV to CAC is at least 3.0x	5.4xMet
Payback on sales spendCAC is paid back from gross profit within 24 months	22.1 monthsMet
Existing customers keep payingNet revenue retention is at least 100%, counting churn and expansion on the ARR at the start of the year	105.0%Met
Efficiency of the burnBurn multiple is at most 1.5x (cash burned for each dollar of new ARR, after the cost of new and existing customers)	0.76xMet
The price can be grown intoARR at the next round, 2 years out, reaches what a 1.97x step-up in valuation needs at the market multiple for its Rule of 40 score	$72.9M against $92.4MNot met

Dunmere customers are worth 5.4x their cost with 22.1 months of payback and net revenue retention of 105.0%, growth is 50% and the Rule of 40 score is 20, so $45.0M at 9.0x ARR, against 6.9x on the market line for that score, buys 13.9% of the company.
The main risk is price: ARR must reach $92.4M by the next round to justify $324.0M today, and this plan reaches $72.9M.
Recommendation: Invest with conditions, and it becomes Invest if the ARR multiple is 7.1x or lower, or first-year growth reaches 64%.

At 10% churn and $56K CAC, a customer is worth 5.4x its cost with 22.1 months of payback and net revenue retention of 105.0%, so the recommendation is Invest with conditions.

The company

Corvane is an invented company that sells estimating software to specialty contractors. It is profitable and generates cash, and customers renew every year.

Why now

Corvane has founders who want a partner for two small acquisitions and a path to a sale or listing in about five years, and some early holders who want to sell part of their shares now.

What to try

Raise the share of the check that is new money to 100% and watch the preference cover the whole check, which lifts the downside.
Switch to a participating preference and watch the downside and the base-case return both rise.
Raise the entry valuation and follow the outlined cell in the sensitivity table as the base-case return falls.
Set the deal fee to 5% and watch every money multiple and IRR fall, because the cost basis is the check plus fees.

Entry valuation (post-money value of all shares)$500M

Check size, before fees$80M

Share of the check that is new money for the company40%

Deal fees, share of the check2.0%

Exit multiple, enterprise value to revenue (base case)4.50x

Revenue growth each year (base case)16%

Hold period before the sale (base case)5 years

Preference terms

The preference is 1x the new money only. The rest of the check buys shares from early holders, and those are plain shares with no preference. The case invents this split: 40% of the check is new money and 60% is secondary.

Non-participating means the investor takes the larger of two things: the preference on the new money plus what the plain shares get from what is left, or what all of its shares would get if it converted them. Participating means it takes the preference on the new money and also its share of what is left.

Investor stake

16.0%

The check divided by the entry valuation

Base-case IRR

20.9%

2.59x on the check plus fees, in year 5

Downside money multiple

0.95x

On the check plus fees

Upside IRR

38.1%

3.64x on the check plus fees, in year 4

The deal at entry

Terms and entry price
Measure	Value
Check	$80M
New money for the company, covered by the preference	$32.0M
Secondary: existing shares bought, plain shares	$48.0M
Deal fees (2.0% of the check)	$1.6M
Total put in, the cost basis for returns	$81.6M
Post-money value of all shares	$500M
Investor stake if it converts	16.0%
Net debt after the deal (negative is net cash)	-$12.0M
Enterprise value at entry	$488M
Enterprise value to revenue at entry	4.07x
Preference	1x on the new money, non-participating

Returns and the liquidation waterfall, by scenario

Downside: growth 10 points lower, an exit multiple 50% of the base, the sale 1 year later, and cash margin 50% of the base.

Upside: growth 8 points higher, an exit multiple 130% of the base, the sale 1 year earlier, and cash margin 120% of the base.

Cash builds on the balance sheet with no dividends, so net debt falls each year by the year's free cash flow. Enterprise value is the price of the business itself. Equity value is what is left for shareholders after debt, or that plus any net cash. Money multiples and IRR are measured on the check plus fees.

Sale of the company
Measure	Downside	Base	Upside
Sale in year	6	5	4
Revenue growth each year	6%	16%	24%
Revenue at sale	$170M	$252M	$284M
Exit multiple of revenue	2.25x	4.50x	5.85x
Enterprise value	$383M	$1,134M	$1,660M
Net debt at sale (negative is net cash)	-$92M	-$184M	-$195M
Equity value	$475M	$1,318M	$1,854M
Preference on the new money pays	$32.0M	$32.0M	$32.0M
Keeping the preference pays in total	$77.4M	$163.9M	$218.9M
Converting everything pays	$76.0M	$211.0M	$296.7M
Investor takes	$77.4M by keeping the preference on the new money and holding the rest as plain shares	$211.0M by converting everything to plain shares	$296.7M by converting everything to plain shares
Everyone else gets	$397M	$1,108M	$1,558M
Money multiple, on check plus fees	0.95x	2.59x	3.64x
IRR, on check plus fees	-0.9%	20.9%	38.1%

Reading the downside

In the downside the sale leaves $475M of equity value. The preference protects only the $32.0M of new money. The $48.0M paid to early holders buys plain shares, which return $45.4M here, so the investor takes $77.4M. Against $81.6M put in (the check of $80.0M plus $1.6M of fees) that is 0.95x.

Sensitivity: base-case IRR

Base-case IRR
Entry valuation	3.5x	4.0x	4.5x	5.0x	5.5x
$400M	21.2%	23.9%	26.4%	28.8%	30.9%
$450M	18.4%	21.0%	23.5%	25.8%	27.9%
$500M	15.9%	18.5%	20.9%	23.1%	25.2%
$550M	13.7%	16.3%	18.6%	20.8%	22.9%
$600M	11.7%	14.3%	16.6%	18.7%	20.7%

Rows are entry valuations and columns are exit multiples, so each cell is the base-case IRR for that pair. The outlined cell is the current setting. Going down the table raises the price paid, and going right raises the multiple the company sells at.

Break-even: what sale value is enough

Base-case sale
Outcome	Equity value	Enterprise value	Revenue multiple
Gets back the new money, the part the preference covers	$32M	none needed	none needed
Gets back the check and the fees (1.0x)	$510M	$326M	1.29x
Earns the 25% hurdle	$1,556M	$1,372M	5.44x

The preference protects only the new money, so the first line is all it guarantees: the investor gets that part back once the equity value at the sale reaches it. Getting back the whole check and the fees also depends on the plain shares bought from early holders, which is why the second line is much higher. When the cash on the balance sheet alone covers an equity value, no enterprise value is needed. The base case assumes an exit multiple of 4.50x, so compare it with the multiple the hurdle needs.

Checks. In every scenario the investor and everyone else add up to the equity value, enterprise value less net debt equals equity value, the investor takes the larger of keeping the preference and converting, the cost basis is the check plus fees, and the IRR matches the money multiple. All checks pass.

Recommendation

Invest with conditions

How the label is chosen: Invest needs a base-case IRR of at least 25% and a downside money multiple of at least 1.00x, both measured on the check plus fees. If either misses, Invest with conditions needs a base-case IRR of at least 18% and a downside money multiple of at least 0.75x. Anything lower is Pass.

Rules behind the recommendation
Rule	Now and result
Base-case returnBase-case IRR is at least 25%, on the check plus fees	20.9%Not met
Downside protectionDownside-case money multiple is at least 1.00x, on the check plus fees	0.95xNot met
Return floor for conditionsBase-case IRR is at least 18%, the lowest return worth negotiating over	20.9%Met
Capital floor for conditionsDownside-case money multiple is at least 0.75x	0.95xMet

$80M at a $500M valuation buys 16.0% of Corvane with a 1x non-participating preference on only the $32M of new money, and a sale in year 5 at 4.5x revenue returns 2.59x and 20.9% a year on the $81.6M put in including fees.
The main risk is return: the base case earns 20.9% a year over 5 years on the $81.6M put in, against a hurdle of 25%.
Recommendation: Invest with conditions, and it becomes Invest if the entry valuation is $424M or lower.

A $80M check at $500M buys 16.0% and returns 2.59x and 20.9% a year in the base case and 0.95x in the downside, after fees, so the recommendation is Invest with conditions.

How I use it

Judging whether a round price leaves room for the investor to earn the return needed
Seeing which assumption would have to be wrong for the investment to fail
Presenting a recommendation in the order a committee expects