Use the below capitalization table for Startup Inc. (Startup) and assume that:

Founders (Natalie & Matt) purchased their shares of common stock for $0.001 per share (for a total of $3,500).

A venture capital fund managed by Tim and Hadley of CMU Ventures (“CMUV”) recently paid $1.00 for each share of its Series A preferred stock (for a total of $5,000,000).

Immediately after the Series A financing, CMUV has the right to convert each share of its Series A preferred stock into one share of common stock.

The Series A preferred stock has “full ratchet” price-based anti-dilution protection.

The Series A preferred stock has a ONE times liquidation preference right (i.e., LP = 1X) AND the Series A preferred stock is “full participating.”

The above capitalization table is accurate and complete (i.e., immediately after the Series A financing: (a) there are no other outstanding shares of stock or options to purchase stock; and (b) Startup has not yet issued any shares reserved for its Stock Option Plan).

Assume further that: (a) Startup triggered CMUV’s anti-dilution protection by issuing an additional 200,000 shares of Startup's Series A preferred stock for $0.10 per share; and, (b) CMUV then immediately converted all of its Series A preferred stock to common stock.

**How many shares of common stock is CMUV entitled to upon its conversion?

Further, assume that: (a) a large Delaware corporation, Big Public Co., is going to buy all of Startup's assets for $20,000,000; (b) immediately after the sale, no shares of Startup's common stock will be subject to any vesting; (c) immediately after the sale, Startup has no debts or other liabilities; and, (d) Startup is going to distribute all of the sale proceeds to its stockholders.

**How much will CMUV receive from the distribution of the sales proceeds as a result of its liquidation preference and participation right?

Transcribed Image Text:

Common Stock: Founders: Natalie & Matt Series A Preferred Stock: CMU Ventures III, LP Total Capital Stock Startup Inc. (Post Series A Capitalization Table) Shares 5,000,000 5,000,000 10,000,000 % 50% 50% 100% Common Stock: Founders: Natalie & Matt Series A Preferred Stock: CMU Ventures III, LP Total Capital Stock Startup Inc. (Post Series A Capitalization Table) Shares 5,000,000 5,000,000 10,000,000 % 50% 50% 100%

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