Caleb Clark Ventures invests $2 million in convertible preferred stock in a company with an $8 million pre-money valuation. The term sheet shows the investment is non-participating with 1x liquidation preference.

Each part is worth 6 marks. Answer the following:

1. What is the ownership percentage of the VC after the investment?

20%

2. At what exit value is the VC indifferent between either converting or not converting?

3. Assume the preferred stock is participating. At an exit value of $15,000,000, what is the payoff to the VC?

4. Assume the preferred stock is participating. At an exit value of $15,000,000, what is the payoff to the common stockholders (i.e. Founders & Management)?

5. If the VC owned non-participating convertible preferred stock with a 2x liquidation preference at what exit value is the VC indifferent between either converting or not converting?

Answer rating: 100% (QA)

Answer Step 1 Part A The ownership percentage of the VC after the in... View the full answer