Liquidation Preference Calculation Table V1.

Participating Preference Preferred Return

Finaning Round $ Raised Pre-$ Val Pfd? Multiple Cap
Series A $5,000,000 $10,000,000 TRUE 2 3
Post-$ Cap Table
Management 67%
Investors 33%

Actual Distribution of Cash in Non-IPO Exit

Plain Vanilla Financing Negotiated Financing
Participating Preferred FALSE Participating Preferred TRUE
Preference Multiple 1 Preference Multiple 2
Preferred Return Cap N/A Preferred Return Cap 3
Exit Value Management Investors Management Investors
$ Out % of Total $ Out % of Total $ Out % of Total $ Out % of Total
$5,000,000 $- 0% $5,000,000 100% $- 0% $5,000,000 100%
$10,000,000 $5,000,000 50% $5,000,000 50% $- 0% $10,000,000 100%
$20,000,000 $13,333,333 67% $6,666,667 33% $6,666,667 33% $13,333,333 67%
$30,000,000 $20,000,000 67% $10,000,000 33% $15,000,000 50% $15,000,000 50%
$40,000,000 $26,666,667 67% $13,333,333 33% $25,000,000 63% $15,000,000 38%
$50,000,000 $33,333,333 67% $16,666,667 33% $33,333,333 67% $16,666,667 33%
$60,000,000 $40,000,000 67% $20,000,000 33% $40,000,000 67% $20,000,000 33%
$70,000,000 $46,666,667 67% $23,333,333 33% $46,666,667 67% $23,333,333 33%
$80,000,000 $53,333,333 67% $26,666,667 33% $53,333,333 67% $26,666,667 33%
$90,000,000 $60,000,000 67% $30,000,000 33% $60,000,000 67% $30,000,000 33%
$100,000,000 $66,666,667 67% $33,333,333 33% $66,666,667 67% $33,333,333 33%

Notes
1) Any cell in blue can be changed and the effect will roll through the model
2) Cell D4 must be either TRUE or FALSE
3) If the preference mutiple is 2 and the preferred return cap is 4,when exit value is between $40M-60M, the investore's return flat-lines at
$20M while management's return is increasing, hence the misalignment appears.
4) a. When exit value is less than preference bottom, the investors take all the money.
b. When shareing ratably with the holders of the Common Stock on a common equivalent basis, the investor get more than the
preference cap, they will convert pref A to common.

Draft: Sam GUI

Blog: Venture Capital Consultant
Calculation
A Convert A no conv, no cap A no conv, cap Post pref. asset Part. Amount

$1,666,667 $5,000,000 $5,000,000 $- $-

$3,333,333 $10,000,000 $10,000,000 $- $-
$6,666,667 $13,333,333 $13,333,333 $10,000,000 $3,333,333
$10,000,000 $16,666,667 $15,000,000 $20,000,000 $6,666,667
$13,333,333 $20,000,000 $15,000,000 $30,000,000 $10,000,000
$16,666,667 $23,333,333 $15,000,000 $40,000,000 $13,333,333
$20,000,000 $26,666,667 $15,000,000 $50,000,000 $16,666,667
$23,333,333 $30,000,000 $15,000,000 $60,000,000 $20,000,000
$26,666,667 $33,333,333 $15,000,000 $70,000,000 $23,333,333
$30,000,000 $36,666,667 $15,000,000 $80,000,000 $26,666,667
$33,333,333 $40,000,000 $15,000,000 $90,000,000 $30,000,000
A Cap $15,000,000
A Bottom $10,000,000
100,000,000

80,000,000

60,000,000

40,000,000

20,000,000
26,666,
20,000,000 23,333,333
13,333,333 15,000,000 15,000,000 16,666,667
10,000,000
5,000,000
0
$5,000,000 $10,000,000 $20,000,000 $30,000,000 $40,000,000 $50,000,000 $60,000,000 $70,000,000 $80,000

Column I Column G

100.00%

33% 33% 33% 33%

80.00% 38%
50%
67%
60.00%
100% 100%

40.00%

20.00%

0.00%
$5,000,000 $10,000,000 $20,000,000 $30,000,000 $40,000,000 $50,000,000 $60,000,000 $70,000,000 $80,000,0

Column H Column J
 30,000,000 33,333,333
26,666,667
20,000,000 23,333,333

$60,000,000 $70,000,000 $80,000,000 $90,000,000 $100,000,000

33% 33% 33% 33% 33%

60,000,000 $70,000,000 $80,000,000 $90,000,000 $100,000,000