The convertible preferred has full participation feature

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Company Z raises 30 on 40 with VC taking convertible preferred with a conversion price equal to the current share price implied by post money valuation. The conversion rate is 1 PS for 1 CS. Founders originally had 10M shares. The founders believe that either the company grows to $600M if their product work as expected or $300M if it is functional but not spectacular.

a) What would VC get in following cases: Value of company at exit is $$20M; 50M; $90M; $300M. What would founders get in those cases? b) Suppose now the convertible preferred has full participation feature. What would the VC get when exit valuation is $50M; $90M and $300M? What would founders get in those cases? f) Suppose you are able to cap the participation to 3 times OPP. At what value of the firm would the VC convert voluntarily? What would VC and founders get in each of the above exit scenarios?

Reference no: EM131314767

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