Question

Suppose that in addition to common stock, your firm raised £9 million in Series A financing with a 1.5x liquidation preference and a £15 million post-money valuation, £13 million in Series B financing with a 2.0x liquidation preference and a £36 million post-money valuation, and £20 million in Series C financing with a 2.5x liquidation preference and a £50 million post-money valuation. Series C investors have the highest seniority followed by Series B and then Series A. None of the financing rounds offered investors participation rights. If the firm is sold after the Series C financing round,

1. What will Series B investors receive if the firm is sold for £62 million?

2. What is the minimum sale price such that common shareholders receive at least £10 million?

3. What is the minimum sale price at which Series A, B and C investors are all willing convert their shares? What will Series A, B, C and common shareholders receive at that price?

Answer 1

Your company has arranged a revolving credit agreement for up to $68 million at an interest rate of 1.37 percent per quarter. The agreement also requires your company to maintain a compensating balance of 6 percent of the unused portion of the credit line, to be deposited in a non-interest bearing account. Your company's short-term investment account at the same bank pays an interest rate of .51 per quarter. What is the effective annual interest rate if your company borrows $33 million for one year?

Suppose that in addition to common stock, your firm raised £9 million in Series A financing with a 1.5x liquidation preference and a £15 million post-money valuation, £13 million in Series B financing with a 2.0x liquidation preference and a £36 million post-money valuation, and £20 million in Series C financing with a 2.5x liquidation preference and a £50 million post-money valuation. Series C investors have the highest seniority followed by Series B and then Series A. None of the financing rounds offered investors participation rights. If the firm is sold after the Series C financing round,

1. What will Series B investors receive if the firm is sold for £62 million?

2. What is the minimum sale price such that common shareholders receive at least £10 million?

3. What is the minimum sale price at which Series A, B and C investors are all willing convert their shares? What will Series A, B, C and common shareholders receive at that price?

Given

Raised

£9 million in Series A financing with a 1.5x liquidation preference and a £15 million post-money valuation

£13 million in Series B financing with a 2.0x liquidation preference and a £36 million post-money valuation,

£20 million in Series C financing with a 2.5x liquidation preference and a £50 million post-money valuation

Series C investors have the highest seniority followed by Series B and then Series A.

1. What will Series B investors receive if the firm is sold for £62 million?

If the firm is sold for £62 million Series C investor will receive = 2.5x£20 million = £50 million

Series B investor will receive = £62 million - £50 million = £12 million

2. What is the minimum sale price such that common shareholders receive at least £10 million?

Minimum sale price = £10 million for common shareholders + 1.5x £9 million for Series A investors + 2.0x £13 million for Series B investors + 2.5x £20 million for Series C investors = £10 million for common shareholders + £13.5 million for Series A investors + £26 million for Series B investors + £50 million for Series C investors = £99.5 million

Minimum sale price = £99.5 million

3. What is the minimum sale price at which Series A, B and C investors are all willing convert their shares? What will Series A, B, C and common shareholders receive at that price?

The minimum sale price at which Series A, B and C investors are all willing convert their shares = £15 million for Series investors + £36 million for series B investors + £50 million for Series C investors = £101 million

The minimum sale price at which Series A, B and C investors are all willing convert their shares = £101 million

Series A investors will receive £15 million

Series B investors will receive £36 million

Series C investors will receive £50 million

Common shareholders will not receive any fund at the minimum sale price of £101 million at which Series A, B and C investors are all willing convert their shares.