Driving Business Advantage
FOLEY
HOAG LLP
Driving Business Advantage
•
Examples of Liquidation Preference
Assume a $5m Series A investment at $20m pre-money valuation (resulting in the
Series A investors owning 20% of the company). The company ends up being sold
for $40m without any additional shares issued after the Series A investment.
A "1X Non-Participating Preferred" means Series A get the greater of their $5m
preference or what they would receive if they converted to common (i.e., 20% of
$40m, or $8m).
Result: $8m goes to the Series A (20%); $32m goes to the common stock (80%)
A "1X Participating Preferred with a 2X Cap" means Series A get their $5m
preference plus 20% of the remaining $35m up to a total 2X cap ($10m).
Result: $10m goes to the Series A (25%); $30m goes to the common stock (75%)
A "1X Participating Preferred without a cap" means Series A get their $5m
preference (the "preferred”) plus 20% of the remaining $35m, or $7m (the
participating").
Result: $12m goes to the Series A (30%); $28m goes to the common stock (70%)
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