Consider the following 

Total common shares (including employee stock pool): 30 million 

Total Series-A preferred shares: 15 million There are no other shares.

 

Suppose the Series-A shares were issued at $1.2 a share and have a 1.5x liquidation preference and broad-based weighted average ratchet protection.

Suppose in the next round 20 million Series-B preferred shares are issued at $0.7. The Series-B preferred has a 1x liquidation preference and that the liquidation preferences of the Series-A and Series-B preferred have equal seniority. Further suppose that right after the Series-B round, the company is sold for cash and the equity holders in aggregate receive $250 million of cash.

All preferred is standard non-participating convertible preferred.

a) How much cash will be received by the holders of the Series-A preferred stock?

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b) What would be your answer to part (a) if the Series-A had full ratchet rather than partial ratchet?

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Answer rating: 100% (QA)

Here are the detailed workings a With broadbased weighted average ratchet for Series A Total shares ... View the full answer