An investor received a term sheet from a venture capitalist, the key terms of which are summarized
Question:
An investor received a term sheet from a venture capitalist, the key terms of which are summarized in the following table: Amount and Securities: 4,000,000 shares of Series A Preferred Stock. Price Per Share: $1.00 per share (the “Original Purchase Price”). Current Outstanding: 6,500,000 shares of Common Stock. In addition, the company has reserved for issuance under its stock option plan an aggregate of 1,500,000 shares of Common Stock (Reserved Shares). Liquidation Preference: In the event of any liquidation, dissolution or winding up of the Company, the proceeds shall be paid as follows: First pay 1.0 times the Original Purchase Price on each share of Series A Preferred. Thereafter, Series A Preferred participates with Common Stock pro rata on an as-converted basis. Optional Conversion: The Series A Preferred converts 1:1 to Common Stock at any time at the option of the holder. Pre-Money Valuation $8,000,000.
A company has 3,000,000 common shares outstanding and then issues 1,000,000 shares of Preferred
stock in a Series A offering at a purchase price of $1.00 per share (resulting in $1,000,000 in financing).
The Series A stock is initially convertible into common stock at a 1:1 ratio for a conversion price of $1.00.
Develop a capitalization table following this Series A round of financing.
