Square raised their first round of venture capital by issuing Series A preferred stock, which is convertible
Question:
Square raised their first round of venture capital by issuing Series A preferred stock, which is convertible into common stock on a 1-1 basis and has a non-participating 1x conventional liquidation preference. Before the offering, they had 7 million shares of common stock and they issued 3 million shares of Series A preferred for $1 per share. One year later, Square needs to raise more capital, so they now plan to issue 5 million shares of Series B preferred stock, which is convertible into common 1-1 and has a non-participating 1x conventional liquidation preference. After meeting with several VC firms in the Valley, they agree on a price of $10 per share.
[A] Complete the series B cap table below:
Second Round Shares Issued (millions) Common After Conversion Price Percentage of Common
Series A convertible preferred
Series B convertible preferred
Common shares
Total shares
[B] Determine the pre- and post-money valuation for this round.
[C] If Square is sold one year later to Apple, Inc. for $100 million, how much would each shareholder (A, B, and common) elect to receive?
Intermediate Accounting
ISBN: 978-0324300987
10th Edition
Authors: Loren A Nikolai, D. Bazley and Jefferson P. Jones