EBV makes a $5M Series A investment in Newco for 5M shares of CP. The employees of

Question:

EBV makes a $5M Series A investment in Newco for 5M shares of CP. The employees of Newco have claims on 10M shares of common stock. At the same time as this transaction, Newco enters into a transaction with Techco to obtain licenses for some Techco patents. As consideration for providing these licenses, Techco receives an option to purchase 10M shares of common stock for $1.00 a share, but this option can only be exercised on an exit above $100M. (Assume that this $100M would be adjusted for any future dilution, so that the threshold is effective for the proceeds owed to the current shareholders.) Newco is aware of the deal with Techco at the time that they make their Series A investment.

(a) Draw and read the exit diagrams for Techco and for the Series A.

(b) Compute the breakeven valuation for the Series A investment under base-case assumptions.

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on...