We use the same setup as in Exercise 18.1, but this time with a different structure for the management carve-out. Now, following the $10M Series E investment from Vulcan Ventures (40M shares of CP with a 2X liquidation preference), management is promised the following incentives: If Newco has an exit of at least $40M, then the employees will receive $5M from these proceeds. If Newco has an exit of at least $60M, then the employees will receive an additional $5M from these proceeds. The earlier investors have 50M shares of common, and the employees have claims on a further 10M shares.

(a) Draw and read the exit diagrams for the management carve-out, for the Series E, and for all other investors combined.

(b) Compute the breakeven valuation for the Series E investment under base-case assumptions.

(c) Compute the implied valuation for the management carve-out under base-case assumptions.