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Venture Capital and the Finance of Innovation [Course number]

Venture Capital and the Finance of Innovation [Course number]. Chapter 16 Participating Convertible Preferred Stock. Professor [Name ] [School Name]. Binary Options. Binary Option Pricing formulas. Plain Binary Option. Random-Expiration Binary Option. Example 1.

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Venture Capital and the Finance of Innovation [Course number]

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  1. Venture Capital and the Finance of Innovation[Course number] Chapter 16 Participating Convertible Preferred Stock Professor [Name ] [School Name]

  2. Binary Options

  3. Binary Option Pricing formulas Plain Binary Option Random-Expiration Binary Option

  4. Example 1 Suppose that EBV offers the employees of Newco a bonus pool of $5M upon any exit where firm value exceeds $200M. Currently, the firm value of Newco is $40M, and base-case option pricing assumptions (Series A) apply. Problem What is the current value of this bonus incentive?

  5. Example 2 • EBV considering $6M Series A investment in Newco • PCP ($6M APP) for 5M shares, with a QPO threshold at $6 per share. • Pre-money shares = 10M • Question: What is the breakeven valuation?

  6. Example 3 • Talltree is considering a $12M Series B investment in Newco • 5M shares of PCP, with a QPO at $12 per share. • Employee shares = 10M • EBV (Series A) has 5M shares of PCPC ($6M APP) a $6 per share QPO, and a 4X cap. Questions: 1) What is the exit diagram for the Series A? 2) What is the breakeven valuation?

  7. Example 4 XYZ ventures is considering a $20M Series F in Newco for 10M shares of PCP with a QPO threshold of $6 per share. • Employees have claims on 20M shares of common • Series A: 10M shares of CP ($6M APP) • Series B: 10M shares of CP ($10M APP) • Series C: 10M shares of CP ($4M APP and 3X liquidation preference) • Series D: 10M shares of PCPC ($10M APP) with 3X cap and $5 QPO • Series E: 10M shares of CP ($10M APP) • All venture investors have $250M committed capital and $50M in lifetime fees. Questions • What is the exit diagram for the Series D PCPC. • What is the breakeven valuation?

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