Blog

Term Sheet Value Calculator

calculator-main

With so much focus on the valuation of the last financing round, value dilution of more junior equity classes is often overloooked.  Indeed, $2 paid in the latest Series B round does not entitled common or Series A shareholders to the same value per share.  Common sense along with the financial theory tells us that junior equity tranches are less valuable.  If that’s the case, why do we insist on measuring dilution based on fully converted shares and ignore the actual value of each equity tranche.

According to Exit Poll published by Thomson Reuters and the National Venture Capital Association (NVCA) this April, M&A’s accounted for 81% to 98% of exits in the last six years.  Many sizable or seemingly successful companies will sell for consideration not sufficent to pay anything to common shareholders or other junior equtiy holders.  Because equity classes are not treated equaly in an M&A exit, understanding relative values of equty tranches at the time of financing becames paramaount.  Equity holders have to get in line; their payouts are based on complex set of preferences granted to all equity holders; the returns on your investments or enterprenural efforts will vary dramatically depending on what’s in that term sheet/s.

We created a Term Sheet Value Calculator to illustrate the point.  If you simply run the the model as populated, you will see that the value of a common share is 10% lower than that of a Series A share.  Change Participation feature from non-participating to participating (“No” to “Yes”) and suddenly your common share is 35% less valuable than a Series A share.  The Term Sheet Value Calculator illustrate the dynamic behynd most complex equity capital structures.  Every shareholder, preferred or common, junior or senior, has to understand the re-distribution of enteprise value that takes place with every round of financing.

More Updates

Financial Forecast For Purchase Price Allocation (ASC 805/IFRS 3)

This article covers several key factors to consider when building a financial forecast or projected financial information (PFI).  This guidance is designed for financial forecasts used in purchase price allocations, i.e., valuation of intangible assets as part of purchase accounting under US GAAP ASC 805 and IFRS 3.  Here are a few requirements:   PFI has to be long enough

Shadow Preferred Stock Devalues Convertible Note

Convertible notes are starting to resemble CDOs, collateralized debt obligations that led to the 2008 financial crisis, partly because few understood how they worked. From the economic perspective, convertible notes are complex; that includes Simple  Agreements for Future Equity (SAFEs). In fact, they are referred to as “complex financial instruments” by auditors and financial regulators.  A typical convertible note is

What M&A Purchase Consideration Is Actually Worth?

Most M&A pricing efforts are focused on valuing an acquired business. Essentially no consideration is given to the value of assets an acquirer is giving up in a transaction. We will attempt to clarify some of these issues.

Schedule a Call

Most new projects will require a brief introductory conversation. Unless you are a returning client asking for an update to a old valuation, please use the calendar below to schedule a call with us:

Send a Message

We are located in the San Francisco Bay Area, while our clients cover much broader geography, from Southern California to the East Coast and Europe. Please contact us with questions and inquiries. Also, feel free to stop by on your way to the beautiful Sonoma or Napa Valley.

Schedule a Call