Venture Capital assignment
You must build the capitalization tables for Alpha and Mega’s Series A financing and their payoff. Now, Trendsetter goes into a second round of financing, and Series A holders may be diluted. Analyze the company’s capitalization at Series B according to the protection provisions on Series A’s Term Sheet.
Suppose on a second round of financing, Trendsetter issues 6 million Series B convertible preferred shares, and the first round was financed by Mega Fund and not by Alpha Ventures’ syndicate.
Read the following extract from Mega Fund Term Sheets’ Antidilution Provisions paragraph #4. Notice the type of anti-dilution protection depends on the future round of financing’s price per share:
Antidilution Provisions: The Series A Preferred shall have weighted average antidilution rights on issuances of shares at a price less than 100% and greater than 50% of the Series A Purchase Price (except for the issuance of the Reserved Shares); provided if new shares are issued at a price less than or equal to 50% of the Series A Purchase Price then the adjustment will be full ratchet; provided, however, that with respect to a Designated Financing, this ratchet adjustment shall be made only if the holder of Series A Preferred invests its Pro Rata Share.
Answer the following questions on the Assignment 8 quiz (link below):
Build Trendsetter’s Post-Series B capitalization table for the case Series A was financed by Mega Fund, and the price per share at Series B is $0.40.
What’s the Series B conversion price?
What’s the Series B conversion rate?
Build Trendsetter’s Post-Series B capitalization table for the case Series A was financed by Mega
Fund, and the price per share at Series B is $0.80.
What’s the Series B conversion price?
What’s the Series B conversion rate?
Build Trendsetter’s Post-Series B capitalization table for the case Series A was financed by Mega
Fund, and the price per share at Series B is $1.50.
What’s the Series B conversion price?
What’s the Series B conversion rate?
Tip: In this case, the number of shares issued for Series B is fixed at 6 million. Therefore, the investment amount in Series B will depend on the price per share.