Class 7 (Ch. 8 amp; 9).ppt

* * * * * * * * * * * * * * * * * * * * * * * * * Class 7 (Ch. 8 9) Based on Andrew Metrick’s Slides Term Sheets – The Basics Expropriation Charter Investor Rights Agreement Rounds Series A, Series B, etc. Capitalization Table Investors and Prices $investment Fully diluted share count Proposed ownership percentage Original purchase price (OPP) Aggregate purchase price (APP) Tranche Post-Money Valuation Post-money valuation = price-per-share × fully-diluted share count or Post-money valuation = $investment / proposed ownership percentage Pre-Money Valuation Pre-money valuation = post-money valuation - $investment or Pre-money valuation = price-per-share × pre-transaction (fully diluted) share count (But be careful in down rounds!) Liquidation Deemed liquidation event Liquidation preference (2X, 3X, etc.) Qualified public offering (QPO) Dividends Dividend Preference Cumulative vs. non-cumulative dividends Accrued cash dividends Simple interest, compound interest Stock dividends = Payment-in-kind (PIK) dividends Restricted Stock Registration Rights Registration rights Demand S-3 Piggyback Redemption rights In-kind distributions Rule 144, rule 144(k), rule 144A Qualified Institutional Buyers (QIBs) Lockup restrictions Other issues Step vesting, cliff vesting Right of first refusal, Right of first offer Drag-along rights Take-me-along = tag-along rights Anti-dilution rights, down rounds Pay-to-Play No Shop Preferred Stock Convertible preferred (CP) In our example, conversion point (WA) occurs when CP (conversion value) = 1/3 * $W = CP (redemption value) = Min ($5M , $W). Conversion Condition: 1/3 * W 5 → WA = 15. Convertible Preferred Payoff Diagram Exit Diagram for Convertible Preferred 15 Other types of preferred stock Redeemable Preferred (RP) Participating Convertible Preferred (PCP) PCP with cap (=PCPC) Key threshold for PCP is a qualified public offering (QPO) Alternatives Structure I: 5M shares of common