Kinnevik Results Presentation Deck
LIQUIDATION PREFERENCES CAN CAUSE SOME IMMOBILITY IN OUR FAIR VALUES,
IN PARTICULAR IN INVESTMENTS WHERE WE HAVE ONLY INVESTED IN ONE ROUND
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In the event of an exit at a valuation lower than a company
has raised capital at, contractual liquidation preferences can
skew the allocation of value away from % ownership towards
the benefit of investors over management, and of shares
purchased at a higher valuation over shares purchased at a
lower valuation
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Very broadly speaking, we are invested in three varieties of
equity capital structures -
No liquidation preferences
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Transaction Valuations
I
Liquidation Preferences
Liquidation preferences where all investors rank equally in
proportion to the capital they have invested, commonly
referred to as pari passu ("equal footing")
Liquidation preferences where investors rank differently,
typically in order from latest round to earliest round, often
referred to as standard seniority
▪ We typically take liquidation preferences into account when
valuing our investments both from a fundamental
perspective and an allocation of value perspective
▪ The prevalence of liquidation preferences in late-stage
growth companies went from >50% in the early 2010s to just
above 10% in late 2021, as investors sacrificed protective
deal terms in exchange for deal flow access
Source: Pitch Book
Our investments in new businesses in 2021 are protected by
these types of downside protections
20%
20%
20%
40%
Ownership
Common ■Series A
Effect of Liquidation Preferences
Illustrative Examples
77%
15%
8%
Invested Capital
With pari passu preferences, all preferential investors
recoups their investment at valuations exceeding
total capital raised, and share value in proportion to
invested capital at valuations lower than total capital
raised
► With ranked preferences, Series C recoups their
investment at valuations exceeding capital raised in
the Series C round before other investors receive
anything, Series B recoups at valuations exceeding
capital raised in the Series B and C rounds before
Series A receives anything (and so forth)
► Common shares are typically only worth something
at valuations exceeding invested capital, and do not
receive their ownership % of value until the valuation
is at or exceeds the last valuation the company
raised capital at
► At valuations between total capital raised and the
last valuation the company raised capital at,
common shares and preferred shares issued in
earlier rounds typically receive the full value
differential in order to "catch up" to preferred equity
issued in the most recent funding round
Series B Series C
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