A Venture Capitalist presents Arbuckle, Inc., the shoes manufacturer with the following term sheet for a series A funding round: Amount Security Mandatory Conversion Price Liquidation Rights S5 million Convertible Preferred Mandatory on IPO >$20m, and price > $4.00/share $1.50 per share 2x Liquidation preference on merger, sule, or liquidation 3 million shares 3 million shares No Full Ratchet Option Pool (employees) Founder Shares Dividends/Redemption Anti-dilution 1. If the company goes public at a market value of S80 million, and assuming the mandatory conversion is triggered (that is, everyone is converted to common shares), how will the value be split between founders, employees, and VC (assuming no further financings)? 2. Does your answer to Question I change if the mode of exit were a merger or acquisition (at a S80m exit value) with no mandatory conversion? If so, give the new split. If not, explain why not. 3. Does your answer to Question 2 change if the security was participating preferred (and keeping the 2x preference)? If so, give the new split. If not, explain why not. 4. If you (the founder) were negotiating the term sheet as given in the table on page 2, and you were sure that the firm will ultimately get acquired at S80m, would you rather reduce the liquidation preference from 2x to ix, or raise the price per series A share from $1.50 to $2? 5. Suppose the company accepts the term sheet as given in the table above. Eight months later the company raises S6m in series B financing, for 40% of the company (i... series B investors will own 40% of the firm when the round is concluded). Does the anti-dilution provision trigger? (that is, is this a down-round?)