Anti DilutionCalculation English

8/10/2019 Anti DilutionCalculation English

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INTRODUCTION

You raise series A venture capita ast year w en your company was va ue at 30mi ion. Now, you nee toraise the series B, but the investors tell you that your company is only worth $20 million. What does this mean to

you? And, what is the effect of the "Anti-dilition Provision" in the series A investors' Term Sheet?

This workbook will calculate how much common shareholders will be diluted in the series B venture financing

(preferred stock) which is priced lower than the first round venture financing.

You can see t e i ution w ere t e series A inancing provi es or 2 scenarios: Simp e Scenario an Norma

Scenario. In the aimple scenario, you know the purchase price and shares number for Series B investor. But this

is not the normal scenario, where you only know the pre-money valuation and the investment amount for the

Series B investor. In each scenario, there are there situations:

1 - no adjustment to the conversion price

2 - partial adjustment to the conversion price: (Broad-based weighted average & Narrow-based weighted

3 - full adjustment of the conversion price: (Full ratched)

The workbook includes 3 worksheets:

Introduction

Assumptions and Results

Simple Scenario (Calculation Details)

Normal Scenario (Calculation Details)

Just fill in the highlighted assumptions on the worksheet -- 'Assumptions and Results'.

Drafted by: Sam GUI, Dec. 2007

Personal Blog: Venture Capital Consultant
http://naixiaobao.spaces.live.com/http://naixiaobao.spaces.live.com/


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Simple ScenarioAssumptions

Founder's Common share 40,000,000Series A Preferred Purchase Price $1.00Series A Preferred share 10,000,000Series B Preferred Purchase Price $0.50Series B Preferred share 5,000,000

Company Ownership

Broad based

Common share 80.00% 72.73% 72.10%

Series A investor 20.00% 18.18% 18.88%Series B investor 0.00% 9.09% 9.01%

Valuation, Purchase Price & Conversion Price

Broad based

Series A conversion price $1.00 $0.95Series B purchase price $0.50 $0.50Series A post-money valuation $50,000,000 $50,000,000Series B pre-money valuation $25,000,000 $25,238,095Series A as-converted common shares 10,000,000 10,476,190Series B preferred shares 5,000,000 5,000,000Series B investment 2,500,000 2,500,000

Normal ScenarioAssumptionsFounder's Common share 8,000,000Series A Investment $2,000,000Series A Preferred share % 20.00%Series B Investment $8,000,000Series B Pre-money Valuation $8,000,000

Company Ownership

Broad based

Common share 80.00% 40.00% 39.02%

Series A investor 20.00% 10.00% 10.98%Series B investor 0.00% 50.00% 50.00%

Valuation, Purchase Price & Conversion Price

Broad based

Series A conversion price $1.00 $0.8889Series B purchase price $0.80 $0.7805Series A post-money valuation $10,000,000 $10,000,000

Before

Series B

Non

anti-dilution

Weighte

Non

anti-dilution

Weighte

Before

Series B

Non

anti-dilution

Weighte

Non

anti-dilution

Weighte


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Series B pre-money valuation $8,000,000 $8,000,000Series A as-converted common shares 2,000,000 2,250,000Series B preferred shares 10,000,000 10,250,000Series B investment 8,000,000 8,000,000


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Narrow based

70.18% 61.54%

21.05% 30.77%8.77% 7.69%

Narrow based

$0.83 $0.50

$0.50 $0.50

$50,000,000 $50,000,000$26,000,000 $30,000,000

12,000,000 20,000,0005,000,000 5,000,000

2,500,000 2,500,000

Narrow based

38.10% 37.50%

11.90% 12.50%50.00% 50.00%

Narrow based

$0.8000 $0.75

$0.7619 $0.75

$10,000,000 $10,000,000

Average Full Ratchet

anti-dilution


anti-dilution

Full Ratchet

anti-dilution


anti-dilution

Average


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$8,000,000 $8,000,0002,500,000 2,666,667

10,500,000 10,666,6678,000,000 8,000,000


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AssumptionsFS Founder's Common share 40,000,000

OP Series A Preferred Purchase Price $1.00

AS Series A Preferred share 10,000,000NP Series B Preferred Purchase Price $0.50BS Series B Preferred share 5,000,000

AI Series A Investment 10,000,000BI Series B Investment 2,500,000

Before Series B Financing

Common share 40,000,000Series A Conversion Price $1.00Series A Common share on As-converted Base 10,000,000 Total Fully Diluted Shares 50,000,000Series A Post-money Valuation 50,000,000

Non anti-dilution

Common share 40,000,000Series A Conversion Price $1.00Series A Common share on As-converted Base 10,000,000Series B Conversion Price $0.50Series B Common share on As-converted Base 5,000,000 Total Fully Diluted Shares 55,000,000Series B Post-money Valuation 27,500,000

Broad based weighted average

Common share 40,000,000

WP Series A Conversion Price $0.95

Series A Common share on As-converted Base 10,476,190Series B Conversion Price $0.50Series B Common share on As-converted Base 5,000,000 Total Fully Diluted Shares 55,476,190Series B Post-money Valuation 27,738,095

Narrow based weighted average


WP Series A Conversion Price $0.83Series A Common share on As-converted Base 12,000,000Series B Conversion Price $0.50

Series B Common share on As-converted Base 5,000,000 Total Fully Diluted Shares 57,000,000Series B Post-money Valuation 28,500,000

Full Ratchet anti-dilution


FP Series A Conversion Price $0.50Series A Common share on As-converted Base 20,000,000Series B Conversion Price $0.50Series B Common share on As-converted Base 5,000,000 Total Fully Diluted Shares 65,000,000

Calculation Details


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Series B Post-money Valuation 32,500,000

Loss of value between Series A and Series B

Series A post-money valuation 50,000,000

Series B pre-money valuation 25,000,000Loss in value -25,000,000

Series B post-money valuation 27,500,000Founder's value after Series B 20,000,000Series A investor's value after Series B 5,000,000

Shared between:

Founder's value lost -20,000,000% 80.00%

Series A investor's value lost -5,000,000% 20.00%

Non

anti-dilution


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Broad based Narrow based

50,000,000 50,000,000 50,000,000

25,238,095 26,000,000 30,000,000-24,761,905 -24,000,000 -20,000,000

27,738,095 28,500,000 32,500,00020,000,000 20,000,000 20,000,0005,238,095 6,000,000 10,000,000

-20,000,000 -20,000,000 -20,000,00080.77% 83.33% 100.00%

-4,761,905 -4,000,000 019.23% 16.67% 0.00%

Weighted Average Full Ratchet

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% Ownership

Before Series B Financing

Founder's Share 8,000,000 80.00%Series A Conversion Price $1.00Series A Common share on As-converted Base 2,000,000 20.00% Total Fully Diluted Shares 10,000,000 100.00%

Non anti-dilution

Common share 8,000,000 40.00%Series A Conversion Price $1.00Series A Common share on As-converted Base 2,000,000 10.00% Total Fully Diluted Shares Before Series B 10,000,000Series B Pre-money Valuation $8,000,000Series B Investment $8,000,000Series B shares 10,000,000 50.00%

NP Series B Purchase Price $0.80 Total Fully Diluted Shares 20,000,000 100.00%

Broad based weighted average

Common share 8,000,000 39.02%WP Series A Conversion Price $0.8889

Series A Common share on As-converted Base 2,250,000 10.98% Total Fully Diluted Shares Before Series B 10,250,000Series B Pre-money Valuation $8,000,000Series B Investment $8,000,000Series B shares 10,250,000 50.00%


Narrow based weighted average

Common share 8,000,000 38.10%WP Series A Conversion Price $0.8000



Full Ratchet anti-dilution

Common share 8,000,000 37.50%FP Series A Conversion Price $0.75



Loss of value between Series A and Series B

Broad based Narrow based

Series A post-money valuation 10,000,000 10,000,000 10,000,000 10,000,000Series B pre-money valuation 8,000,000 8,000,000 8,000,000 8,000,000Loss in value -2,000,000 -2,000,000 -2,000,000 -2,000,000

Series B post-money valuation 16,000,000 16,000,000 16,000,000 16,000,000Founder's value after Series B 6,400,000 6,243,902 6,095,238 6,000,000Series A investor's value after Series B 1,600,000 1,756,098 1,904,762 2,000,000

Shared between:

Founder's value lost -1,600,000 -1,756,098 -1,904,762 -2,000,000% 80.00% 87.80% 95.24% 100.00%

Series A investor's value lost -400,000 -243,902 -95,238 0% 20.00% 12.20% 4.76% 0.00%

Non

anti-dilution

Weighted Average Full Ratchet

anti-dilution

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Documents

Anti DilutionCalculation English