Walnut Venture Associates
Case (D)
To facilitate a discussion of valuation, you will need to complete the following exercise:
First:
Given the deal structure as defined in the term sheet:
Series A Redeemable preferred 1800 shares @$1,000
Series B Convertible Preferred 55,556 shares @3.60
Calculate the returns to the Series A, the Series B, the total to this round of financing (i.e. Series A+ Series B) and the returns to the Common (i.e. all the other share and option holders) at the following liquidation values:
$1,000,000
$2,000,000
$3,000,000
$10,000,000
$20,000,000
Additional assumptions:
Time to liquidation = 5 years
Remember:
1. Take the dividends into account.
2. Decide whether the Series B will convert to common or are better off staying as preferred at each liquidation value.
(Don’t bother about the additional $500,000 which may be invested but is not covered in the termsheet.)
You might want to fill in a table like this:
Investor Liquidation Values/Investor Returns
$1,000,000 $2,000,000 $3,000,000 $10,000,000 $20,000,000
Series A
Series B
Common
Total $1,000,000 $2,000,000 $3,000,000 ...