Caselet Waterfall Analysis and Valuation

Given the following typical funding needs and example exit scenarios, does investing in the Pre-Seed round (a Convertible Note with a 20% Discount, 8% Interest, & 3mm Cap) make sense?

Typical Funding Requirements

• Now: Pre-seed Round - $300k on a Convertible Note with a 20% Discount, 8% Interest, & $3mm Cap

• 1 Year later: Pre-seed + Round - $500k on a Convertible Note with a 20% Discount, 8% Interest, & $4mm Cap

• 1 Year Later: Seed Round - $2mm-$3mm on a $8mm Pre-Money Valuation

• 18 Months Later: Series A - $5mm-$8mm on a $20mm Pre-Money Valuation

• 18 Months Later: Series B - $20mm-$30mm on a $100mm Pre-Money Valuation

Exit Scenarios

• IPO: $1.5B in 7-10 Years

• Acquisition: $300mm in 5-7 Years

• Acquisition: $70mm in 5 Years

• Acquisition: $25mm in 3-5 Years

Questions to answer

• As a pre-seed investor, what is your expected return for each exit scenario?

• What is your overall expected return?

• Based on your analysis of the return for each round of investors, do you see any red flags for raising future funds?

• What are the investors in each round betting on?

• How much would YOU value the company at, based on the potential exit scenarios?