#8-Assignment (Cap Tables-Liquidation Preferences)

Due: October 10^th @ 11:59 pm

Total Points: 25

Submit: Canvas #8-Assignment

Company JK

Investor Returns - Common Stock Shareholders Only

Problem #1: (7.5 Points)

A single Founder-CEO formed Company JK three years ago. The Founder-CEO personally invested $100,000 to launch the business and shortly thereafter created a Common Stock Option Pool.After about a year, the Founder-CEO raised an incremental $200,000 via a secondary Common Stock offering. Over the last couple of years unfortunately the Company has struggled to expand beyond it small Beachhead Market niche.Recently the Company has approached by a much larger competition that expressed a strong interest in purchasing the Company for $5 million cash. Given the below stated Company JK Capitalization Table and the current forecasted Exit Value what would be each Shareholder's Liquidation Preference, Common Stock return and Total Return and each Shareholder's anticipated Investor ROI if this sale is completed? Make the necessary computation and fill-in each of the "gray highlighted" boxes below in the Investor Return table (i.e. round to whole dollars).

		Cash		Total
Shareholders:	Investment	Total Shares	% Equity
Founder #1		$100,000	500,000	66.7%
Option Pool			150,000	20.0%
Common Investor(s):
Angel #1		$40,000	20,000	2.7%
Angel #2		$60,000	30,000	4.0%
Angel #2		$100,000	50,000	6.7%
Total			750,000	100.0%
Projected Exit Value			$5,000,000
		Liquidation	Common	Total Investor	Investor
Shareholders:	Preference	Equivalent	Return	ROI
Founder #1			3,335,000
Option Pool			1,000,000
Common Investor(s):
Angel #1			135,000
Angel #2			200,000
Angel #2			335,000
Total			5,000,000

Company KL:

Investor Returns - Combination Preferred AND Common Stock Shareholders

Problem #2:(17.5 Points)

After 7 challenging years, both the Founder/CEO and especially the Preferred Stock - Series B Seed Venture Capital Fund are ready for a "liquidity event" given it is approaching the end of its Partnership life. Unfortunately the Company's performance has been well below expectations of all participants, however both the Angel Groups & the Seed Venture Fund invested by a "Non-participating" Preferred Stock in order to secure some incremental level of "downside" protection. The Preferred Series A Investors have been invested for 6 years while the Preferred Series B Investors have been invested for only 4 years. The terms for these "Non-participating" Preferred Series A & B Stocks are as follows:

Liquidation Dividend

Multiple Rate

Preferred Series A 2.0 10%

Preferred Series B 1.0 5%

The M&A broker hired by the Company about 9 months ago has received a bona fide $4.0 Million all cash offer. Given the below stated Company JK fully diluted Capitalization Table, compute the total Liquidation Preference for each applicable Investor, the Common Equivalent return, the Total Return and ROI for each Shareholder. Make the necessary computations and fill-in each of the "gray highlighted" boxes below in the Liquidation Preference/Distributable Equity table and the Investor Return table (i.e. round to whole dollars). After completing the Investor Return table then compute the "Effective" % Equity (i.e. Total Investor Return / Total Exit Value) for each shareholder. Notice that due to the various Liquidation Preference there can be meaningful difference between the Cap Table % Equity and the Actual Cash "Effective" % Equity. Then answer the following question (i.e. type-in answer).

Does any Investor "lose money" (i.e. no or yes)? _________ If Yes, who __________________________.

		Cash		Total		Effective
Shareholders:	Investment	Total Shares	% Equity		% Equity
Founder #1		$100,000	500,000	22.7%
Option Pool			150,000	6.8%
Common Investor(s):
Angel #1		$25,000	20,000	0.9%
Angel #2		$75,000	30,000	1.4%
Preferred Series A Investors:
Angel Group #1	$450,000	450,000	20.5%
Angel Group #2	$300,000	300,000	13.6%
Preferred Series B Investors:
Seed VC Fund #1	$1,500,000	750,000	34.1%
Total			2,200,000	100.0%

Projected Exit Value
		Dividend	Years	Liquidation	Total $ Liquid.
Liquidation Preferences:	Rate	to Exit	Multiple	Preference
Preferred Series A:
Series A Investment Multiple		2.0
Series A Accrued Dividends	10%
Total Preferred Series A Non-Participating Liquidation Rights:
Liquidation Preferences:
Preferred Series B:
Series B Investment Multiple		1.0
Series B Accrued Dividends	5%
Total Preferred Series B Non-Participating Liquidation Rights:
Distributable Equity
		Liquidation	Common	Total Investor	Investor
Shareholders:	Preference	Equivalent	Return	ROI
Founder #1
Option Pool
Common Investor(s):
Angel #1
Angel #2
Preferred Series A Investors:
Angel Group #1
Angel Group #2
Preferred Series B Investors:
Seed VC Fund #1
Total