ABC Company: Series B Investment

Assumptions
Existing Ownership Shares
CEO
Current Investor 1
Current Investor 2
Current Investor 3
Series B Investors
Employees
Loan
Loan Converts to Equity (Yes/No)
Loan Amount
Option Pool
Option Pool Created (Yes/No) Yes
Option Pool % after financing 20%
Series B Management Stock Grants 0
Series B Invested Capital ($MM)
Ownership Acquired by New Investors
Pre-Money Value ($MM)
Pre-Money Share Value #DIV/0!
Series B Price / Share
Post-Money Valuation

Capitalization Table
Current Capitalization

Options Common
Shares Shares
Management:
CEO 0 0

Investors
Current Investor 1 0 0
Current Investor 2 0 0
Current Investor 3 0 0

New Investors
Series B Investors 0 0

Bridge Note
Loan 0 0

Options Pool
Employees 0 0

Summary
Total Shares/Value 0 0
Current Capitalization Post-Series B Financing Capita
0% for $
Total Ownership Value Options Existing New
Shares % ($) Shares Common Common

0 #DIV/0! #DIV/0! 0 0 0

0 #DIV/0! #DIV/0! 0 0 0
0 #DIV/0! #DIV/0! 0 0 0
0 #DIV/0! #DIV/0! 0 0 0

0 #DIV/0! #DIV/0! 0 0 0

0 #DIV/0! #DIV/0! 0 0 0

0 #DIV/0! #DIV/0! 0 0

0 #DIV/0! #DIV/0! 0 0 0
Post-Series B Financing Capitalization
0% for $
Series B Total Ownership Value
Shares Shares % ($)

0 0 #DIV/0! #DIV/0!

0 0 #DIV/0! #DIV/0!
0 0 #DIV/0! #DIV/0!
0 0 #DIV/0! #DIV/0!

0 #DIV/0! #DIV/0!

0 0 #DIV/0! #DIV/0!

0 0 #DIV/0! #DIV/0!

0 0 #DIV/0! #DIV/0!
ABC Company: Series B Investment

Assumptions
Existing Ownership Shares
CEO 1,250,000
Current Investor 1 500,000
Current Investor 2 50,000
Current Investor 3 250,000
Series B Investors 0
Employees 0
Loan
Loan Converts to Equity (Yes/No)
Loan Amount
Option Pool
Option Pool Created (Yes/No) Yes
Option Pool % after financing 20%
Series B Management Stock Grants 0
Series B Invested Capital ($MM) $2,500,000
Ownership Acquired by New Investors 25%
Pre-Money Value ($MM) $7,500,000 Check:
Pre-Money Share Value $2.68 $5,500,000
Series B Price / Share $2.68 $2,000,000
Post-Money Valuation $10,000,000 $7,500,000
$2,500,000
$10,000,000
Capitalization Table
Current Capitalization

Options Common
Shares Shares
Management:
CEO 0 1,250,000

Investors
Current Investor 1 0 500,000
Current Investor 2 0 50,000
Current Investor 3 0 250,000

New Investors
Series B Investors 0 0

Bridge Note
Loan 0 0

Options Pool
Employees 0 0

Summary
Total Shares/Value 0 2,050,000
 73%
27%

$2.68

Current Capitalization Post-Series B Financing Capita

25% for $2500000
Total Ownership Value Options Existing New
Shares % ($) Shares Common Common

1,250,000 61.0% $ 4,573,171 0 1,250,000 0

500,000 24.4% $ 1,829,268 0 500,000 0

50,000 2.4% $ 182,927 0 50,000 0
250,000 12.2% $ 914,634 0 250,000 0

0 0.0% $ - 0 0 0

0 0.0% $ - 0 0 0

0 0.0% $ - 745,455 0 0

2,050,000 100.0% $ 7,500,000 745,455 2,050,000 0

Post-Series B Financing Capitalization
25% for $2500000
Series B Total Ownership Value
Shares Shares % ($)

0 1,250,000 33.5% $ 3,353,659

0 500,000 13.4% $ 1,341,463

0 50,000 1.3% $ 134,146
0 250,000 6.7% $ 670,732

931,818 931,818 25.0% $ 2,500,000

0 0 0.0% $ -

0 745,455 20.0% $ 2,000,000

931,818 3,727,273 100.0% $ 10,000,000

ABC Company: Series B Investment

Assumptions
Existing Ownership Shares
CEO 1,250,000
Current Investor 1 500,000
Current Investor 2 50,000
Current Investor 3 250,000
Series B Investors 0
Employees 0
Loan
Loan Converts to Equity (Yes/No)
Loan Amount
Option Pool
Option Pool Created (Yes/No) Yes
Option Pool % after financing 20%
Series B Management Stock Grants 0
Series B Invested Capital ($MM) $2,500,000
Ownership Acquired by New Investors 25%
Pre-Money Value ($MM) $7,500,000
Pre-Money Share Value $3.66
Series B Price / Share $3.66
Post-Money Valuation $10,000,000

Capitalization Table
Current Capitalization

Options Common
Shares Shares
Management:
CEO 0 1,250,000

Investors
Current Investor 1 0 500,000
Current Investor 2 0 50,000
Current Investor 3 0 250,000

New Investors
Series B Investors 0 0

Bridge Note
Loan 0 0

Options Pool
Employees 0 0

Summary
Total Shares/Value 0 2,050,000
Current Capitalization Post-Series B Financing Capita
25% for $2500000
Total Ownership Value Options Existing New
Shares % ($) Shares Common Common

1,250,000 61.0% $ 4,573,171 0 1,250,000 0

500,000 24.4% $ 1,829,268 0 500,000 0

50,000 2.4% $ 182,927 0 50,000 0
250,000 12.2% $ 914,634 0 250,000 0

0 0.0% $ - 0 0 0

0 0.0% $ - 0 0 0

0 0.0% $ - 683,333 0 0

2,050,000 100.0% $ 7,500,000 683,333 2,050,000 0

Post-Series B Financing Capitalization
25% for $2500000
Series B Total Ownership Value
Shares Shares % ($)

0 1,250,000 36.6% $ 3,658,537

0 500,000 14.6% $ 1,463,415

0 50,000 1.5% $ 146,341
0 250,000 7.3% $ 731,707

683,333 683,333 20.0% $ 2,000,000

0 0 0.0% $ -

0 683,333 20.0% $ 2,000,000

683,333 3,416,667 100.0% $ 10,000,000

ABC Company: Series B Investment

Assumptions
Existing Ownership Shares
CEO 1,250,000
Current Investor 1 500,000
Current Investor 2 50,000
Current Investor 3 250,000
Series B Investors 0
Employees 0
Loan
Loan Converts to Equity (Yes/No)
Loan Amount
Option Pool
Option Pool Created (Yes/No) Yes
Option Pool % after financing 20%
Series B Management Stock Grants 0
Series B Invested Capital ($MM) $2,500,000
Ownership Acquired by New Investors 25%
Pre-Money Value ($MM) $7,500,000
Pre-Money Share Value
Series B Price / Share
Post-Money Valuation $10,000,000

Capitalization Table
Current Capitalization

Options Common
Shares Shares
Management:
CEO 0 1,250,000

Investors
Current Investor 1 0 500,000
Current Investor 2 0 50,000
Current Investor 3 0 250,000

New Investors
Series B Investors 0 0

Bridge Note
Loan 0

Options Pool
Employees 0 0

Summary
Total Shares/Value 0 2,050,000
Current Capitalization Post-Series B Financing Capita
25% for $2500000
Total Ownership Value Options Existing New
Shares % ($) Shares Common Common

1,250,000 61.0% $ 4,573,171 0 1,250,000 0

500,000 24.4% $ 1,829,268 0 500,000 0

50,000 2.4% $ 182,927 0 50,000 0
250,000 12.2% $ 914,634 0 250,000 0

0 0.0% $ - 0 0 0

0 0.0% $ - 0 0 0

0 0.0% $ - 745,455 0 0

2,050,000 100.0% $ 7,500,000 745,455 2,050,000 0

Post-Series B Financing Capitalization
25% for $2500000
Series B Total Ownership Value
Shares Shares % ($)

0 1,250,000 33.5% $ 3,353,659

0 500,000 13.4% $ 1,341,463

0 50,000 1.3% $ 134,146
0 250,000 6.7% $ 670,732

931,818 931,818 25.0% $ 2,500,000

0 0 0.0% $ -

0 745,455 20.0% $ 2,000,000

931,818 3,727,273 100.0% $ 10,000,000

ABC Company: Series B Investment

Assumptions
Existing Ownership Shares
CEO 1,250,000
Current Investor 1 500,000
Current Investor 2 50,000
Current Investor 3 250,000
Series B Investors 0
Employees 0
Loan
Loan Converts to Equity (Yes/No) Yes
Loan Amount $1,000,000 Go to "File - Options - Formu
Option Pool Iterative Calculations"
Option Pool Created (Yes/No) Yes
Option Pool % after financing 20%
Series B Management Stock Grants 0
Series B Invested Capital ($MM) $2,500,000
Ownership Acquired by New Investors 25% Check:
Pre-Money Value ($MM) $7,500,000 $4,500,000
Pre-Money Share Value $2.20 $2,000,000
Series B Price / Share $2.20 $1,000,000
Post-Money Valuation $10,000,000 $7,500,000
$2,500,000
$10,000,000
Capitalization Table
Current Capitalization

Options Common
Shares Shares
Management:
CEO 0 1,250,000

Investors
Current Investor 1 0 500,000
Current Investor 2 0 50,000
Current Investor 3 0 250,000

New Investors
Series B Investors 0 0

Bridge Note
Loan 0 455,556

Options Pool
Employees 0 0

Summary
Total Shares/Value 0 2,505,556
 Go to "File - Options - Formulas" and select "Enable
Iterative Calculations" and set to 100.

Current Capitalization Post-Series B Financing Capita

25% for $2500000
Total Ownership Value Options Existing New
Shares % ($) Shares Common Common

1,250,000 49.9% $ 3,741,685 0 1,250,000 0

500,000 20.0% $ 1,496,674 0 500,000 0

50,000 2.0% $ 149,667 0 50,000 0
250,000 10.0% $ 748,337 0 250,000 0

0 0.0% $ - 0 0 0

455,556 18.2% $ 1,363,636 0 455,556 0

0 0.0% $ - 911,111 0 0

2,505,556 100.0% $ 7,500,000 911,111 2,505,556 0

Post-Series B Financing Capitalization
25% for $2500000
Series B Total Ownership Value
Shares Shares % ($)

0 1,250,000 27.4% $ 2,743,902

0 500,000 11.0% $ 1,097,561

0 50,000 1.1% $ 109,756
0 250,000 5.5% $ 548,780

1,138,889 1,138,889 25.0% $ 2,500,000

0 455,556 10.0% $ 1,000,000

0 911,111 20.0% $ 2,000,000

1,138,889 4,555,556 100.0% $ 10,000,000

ABC Company: Series B Investment

Assumptions
Existing Ownership Shares
CEO 1,250,000 Pre-Money
Current Investor 1 500,000 Investment
Current Investor 2 50,000 Post-Money
Current Investor 3 250,000
Series B Investors 0
Employees 0 Price per Share
Loan Goal Seek
Loan Converts to Equity (Yes/No) Yes
Loan Amount $1,000,000 Shares Pre
Option Pool Shares Bridge
Option Pool Created (Yes/No) Yes Shares New
Option Pool % after financing 20% Shares Options
Series B Management Stock Grants 0 Post Money
Series B Invested Capital ($MM) $2,500,000
Ownership Acquired by New Investors 25% Check:
Pre-Money Value ($MM) $7,500,000 $4,500,000
Pre-Money Share Value $2.20 $2,000,000
Series B Price / Share $2.20 $1,000,000
Post-Money Valuation $10,000,000 $7,500,000
$2,500,000
$10,000,000
Capitalization Table
Current Capitalization

Options Common
Shares Shares
Management:
CEO 0 1,250,000

Investors
Current Investor 1 0 500,000
Current Investor 2 0 50,000
Current Investor 3 0 250,000

New Investors
Series B Investors 0 0

Bridge Note
Loan 0 455,556

Options Pool
Employees 0 0

Summary
Total Shares/Value 0 2,505,556
 $7,500,000
$2,500,000
$10,000,000

$2.20 Go to "Data -What If Analysis - Goal Seek". "Set cell"

E11 "to Value of" 0 :by changing cell" E10. This allows
$0.00 the calculation of the share price based on the new
investment parameters.
4,500,000
1,000,000
2,500,000
2,000,000
10,000,000

Current Capitalization Post-Series B Financing Capita

25% for $2500000
Total Ownership Value Options Existing New
Shares % ($) Shares Common Common

1,250,000 49.9% $ 3,741,685 0 1,250,000 0

500,000 20.0% $ 1,496,674 0 500,000 0

50,000 2.0% $ 149,667 0 50,000 0
250,000 10.0% $ 748,337 0 250,000 0

0 0.0% $ - 0 0 0

455,556 18.2% $ 1,363,636 0 455,556 0

0 0.0% $ - 911,111 0 0

2,505,556 100.0% $ 7,500,000 911,111 2,505,556 0

Post-Series B Financing Capitalization
25% for $2500000
Series B Total Ownership Value
Shares Shares % ($)

0 1,250,000 27.4% $ 2,743,902

0 500,000 11.0% $ 1,097,561

0 50,000 1.1% $ 109,756
0 250,000 5.5% $ 548,780

1,138,889 1,138,889 25.0% $ 2,500,000

0 455,556 10.0% $ 1,000,000

0 911,111 20.0% $ 2,000,000

1,138,889 4,555,556 100.0% $ 10,000,000

Original Investment
Series A $5,000,000
Series B $7,500,000

Net Proceeds
Exit Value $50,000,000
(less) liquidation preference Series B $7,500,000 1.0x
Net Proceeds to A $42,500,000
(less) liquidation preference Series A $5,000,000 1.0x
Net Proceeds to Common $37,500,000

Participation
Net Proceeds paid on % Ownership % Ownership Proceeds Shares
Series A 25% $9,375,000 250,000
Series B 40% $15,000,000 400,000
Common 35% $13,125,000 350,000
1,000,000

Total Proceeds Paid Liq. Pref. Particip. Total Multiple

Series A $5,000,000 $9,375,000 $14,375,000 2.9x
Series B $7,500,000 $15,000,000 $22,500,000 3.0x
Common $13,125,000 $13,125,000
$50,000,000
As Converted Basis Proceeds
Series A $12,500,000
Series B $20,000,000
Common $17,500,000
Total $50,000,000

Actual Proceeds
Series A $11,458,333 Coverts to common since exceeds 2x cap ($10M) with l
Series B $22,500,000 Comes in at cap with participation; proceeds less on an
Common $16,041,667 Remainder
Total $50,000,000
 Cap (x) Cap $ Exceed
2.0x $10,000,000.0 yes
3.0x $22,500,000.0 no

eeds 2x cap ($10M) with liquidation preferences ($14.4M)

ation; proceeds less on an as converted basis
Waterfall
Capital structure summary

Shares % ownership
Series B Preferred 400,000.0 40.0%
Series A Preferred 250,000.0 25.0%
Common Stock (includes all options) 350,000.0 35.0%
Total 1,000,000.0

Exit valuation
Exit date January 1, 2018
Current date January 1, 2012
Number of years 6
Exit EBITDA multiple 10.0x
Implied exit EBITDA 5,000,000.0
Exit enterprise value 50,000,000.0

Waterfall (flow of funds)

Series B convert? n n
Series A convert? y n
Exit 50,000,000.0 50,000,000.0
Liquidation preference B 7,500,000.0 7,500,000.0
Proceeds available for preference B 7,500,000.0 7,500,000.0
Remaining proceeds 42,500,000.0 42,500,000.0
Liquidation preference A 0.0 5,000,000.0
Proceeds available for preference A 0.0 5,000,000.0
Remaining proceeds 42,500,000.0 37,500,000.0
Participating cap B 15,000,000.0 15,000,000.0
Participating cap A 0.0 5,000,000.0
Remaining proceeds 27,500,000.0 17,500,000.0
Proceeds to B 22,500,000.0 7,500,000.0
Proceeds to A 11,458,333.3 10,000,000.0
Proceeds to common 16,041,666.7 17,500,000.0
Total proceeds 50,000,000.0 50,000,000.0
Error check OK OK

Pro rata shares B 0.0 0.0

Pro rata shares A 250,000.0 0.0
Common 350,000.0 350,000.0
Total 600,000.0 350,000.0
B ownership 0% 0%
A ownership 42% 0%
Common ownership 58% 100%

Decision tree
Series B convert? n n
Series A convert? y n
A proceeds 11,458,333.3 10,000,000.0
A decision options optimal -
B proceeds 22,500,000.0 -
Calculations 22,500,000.0 800,000,000.0
B decision options optimal -

Returns summary
Convert? Proceeds
Series B n 22,500,000.0
Series A y 11,458,333.3
Common 16,041,666.7

Proceeds to B at exit
Exit value Participation cap
22,500,000.0 1.0x 3.0x
40,000,000.0 16,000,000.0 18,500,000.0
100,000,000.0 40,000,000.0 40,000,000.0
300,000,000.0 120,000,000.0 120,000,000.0
500,000,000.0 200,000,000.0 200,000,000.0
800,000,000.0 320,000,000.0 320,000,000.0
1,300,000,000.0 520,000,000.0 520,000,000.0
2,000,000,000.0 800,000,000.0 800,000,000.0

Returns to B at exit
Exit value Participation cap
3.0x 1.0x 3.0x
40,000,000.0 2.1x 2.5x
100,000,000.0 5.3x 5.3x
300,000,000.0 16.0x 16.0x
500,000,000.0 26.7x 26.7x
800,000,000.0 42.7x 42.7x
1,300,000,000.0 69.3x 69.3x
2,000,000,000.0 106.7x 106.7x
 Liquidation Participation Investment # of years betw.
Investment preferance cap date investm. & exit
7,500,000.0 7,500,000.0 3.0x January 1, 2009 9
5,000,000.0 5,000,000.0 2.0x January 1, 2005 13

Exit values
40,000,000.0
50,000,000.0
60,000,000.0
70,000,000.0
80,000,000.0
90,000,000.0
100,000,000.0

y y
y n
50,000,000.0 50,000,000.0
0.0 0.0
0.0 0.0
50,000,000.0 50,000,000.0
0.0 5,000,000.0
0.0 5,000,000.0
50,000,000.0 45,000,000.0
0.0 0.0
0.0 5,000,000.0
50,000,000.0 40,000,000.0
20,000,000.0 16,000,000.0
12,500,000.0 10,000,000.0
17,500,000.0 18,666,666.7
50,000,000.0 50,000,000.0
OK OK

400,000.0 400,000.0
250,000.0 0.0
350,000.0 350,000.0
 1,000,000.0 750,000.0
40% 53%
25% 0%
35% 47%

y y
y n
12,500,000.0 10,000,000.0
optimal -
20,000,000.0 -
800,000,000.0 22,500,000.0
optimal -

CAGR Multiple returns

20.1% 3.0x
14.8% 2.3x

Participation cap
5.0x 20.0x
18,500,000.0 18,500,000.0
40,000,000.0 44,500,000.0
120,000,000.0 124,500,000.0
200,000,000.0 200,000,000.0
320,000,000.0 320,000,000.0
520,000,000.0 520,000,000.0
800,000,000.0 800,000,000.0

Participation cap
5.0x 20.0x
2.5x 2.5x
5.3x 5.9x
16.0x 16.6x
26.7x 26.7x
42.7x 42.7x
69.3x 69.3x
106.7x 106.7x
The decision triee
The waterfall (flow of funds) schedule in this model uses a decisio
permutation of decisions for the providers of capital, and determ
capital.

For example, let's analyze A's optimal outcome with a $150m exi

A's choices:
If neither C nor B convert : not convert
If C doesn't convert but B converts: not convert
If both C and B convert : convert
If C converts but B doesn't convert: convert

This informs B's choice:

If C doesn't convert, B is best off not converting, because A won'
have been best off converting as well).
If C converts, B is best off converting, given A's choice to convert.

This informs C's choice :

C determines that not converting is optimal, since C knows that i
convert, while if it doesn't, A and B will not. In this example, by th
under any circumstances, but that is not always the case.
hedule in this model uses a decision tree that lays out every possible
e providers of capital, and determines proceeds to each provider of

ptimal outcome with a $150m exit with a 2x cap across the board:

convert
erts: not convert
rt
ert: convert

ff not converting, because A won't convert (had A converted, B would

s well).
erting, given A's choice to convert.

ng is optimal, since C knows that if it converts, both A and B will

nd B will not. In this example, by the way, C clearly should not convert
hat is not always the case.