Assume a company had an A-round in which it sold 10 million shares of convertible preferred stock at $1.00 per share. Prior to the financing, Founders and Management owned 15 million shares of common stock. The company needs to raise an additional $5 million in a Series B round and learns that the investors insist on a pre-money valuation of $15 million. Your assignment is to figure out the new price per share of Series B convertible preferred stock under two scenarios:

1. There is no antidilution for prior investors (i.e., there is no price adjustment for prior investors). Hint: Series B Pre-Money-Value = Series B Price Per Share * Shares Outstanding Before Series B

2. There is full ratchet antidilution for prior investors (i.e., old investors are issued new shares for free such that their effective price equals the new price being paid by new investors).

   Hint: Shares Outstanding Before Series B = Founders Shares + Series A Shares after antidilution

Under each scenario, also determine what share of the common stock equivalents outstanding is

owned after Series B by Founders and Management, the Series A, and the Series B investors.

BONUS:

3. How do things change if there is weighted average dilution protection (i.e., old investors receive additional shares free to lower their effective price paid per share).

A typical formula for calculating the price adjustments using weighted average dilution protection is: NCP= [(OB*OCP) + New$] / OA

where: NCP = New Conversion Price for Series A Investment OB = Outstanding Shares Before Offering OCP = Old Conversion Price New$ = Amount Raised in Offering OA = Outstanding Shares After Offering Note: Outstanding Shares After Offering [OA] is itself a function of the New Conversion Price [NCP]

in that a lower NCP will result in additional shares being issued to holders of this anti-dilution protection, thus increasing OA and driving an even lower NCP. This circular reference will be difficult to model in Excel.