Caleb Clark Ventures invests $2 million in convertible preferred stock in a company with an $8 million
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Question:
Caleb Clark Ventures invests $2 million in convertible preferred stock in a company with an $8 million pre-money valuation. The term sheet shows the investment is non-participating with 1x liquidation preference.
Each part is worth 6 marks. Answer the following:
- What is the ownership percentage of the VC after the investment?
20%
- At what exit value is the VC indifferent between either converting or not converting?
- Assume the preferred stock is participating. At an exit value of $15,000,000, what is the payoff to the VC?
- Assume the preferred stock is participating. At an exit value of $15,000,000, what is the payoff to the common stockholders (i.e. Founders & Management)?
- If the VC owned non-participating convertible preferred stock with a 2x liquidation preference at what exit value is the VC indifferent between either converting or not converting?
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