INTRODUCTION

You raised series A venture capital last year when your company was valued at $30 million. Now, you need to
raise the series B, but the investors tell you that your company is only worth $20 million. What does this mean to
you? And, what is the effect of the "Anti-dilition Provision" in the series A investors' Term Sheet?
This workbook will calculate how much common shareholders will be diluted in the series B venture financing
(preferred stock) which is priced lower than the first round venture financing.
You can see the dilution where the series A financing provides for 2 scenarios: Simple Scenario and Normal
Scenario. In the aimple scenario, you know the purchase price and shares number for Series B investor. But this
is not the normal scenario, where you only know the pre-money valuation and the investment amount for the
Series B investor. In each scenario, there are there situations:
1 - no adjustment to the conversion price
2 - partial adjustment to the conversion price: (Broad-based weighted average & Narrow-based weighted
3 - full adjustment of the conversion price: (Full ratched)
The workbook includes 3 worksheets:
Introduction
Assumptions and Results
Simple Scenario (Calculation Details)
Normal Scenario (Calculation Details)
Just fill in the highlighted assumptions on the worksheet -- 'Assumptions and Results'.
Drafted by: Sam GUI, Dec. 2007
Personal Blog: Venture Capital Consultant

Simple Scenario
Assumptions
Founder's Common share
Series A Preferred Purchase Price
Series A Preferred share
Series B Preferred Purchase Price
Series B Preferred share

40,000,000
$1.00
10,000,000
$0.50
5,000,000

Company Ownership
Before
Series B
80.00%
20.00%
0.00%

Common share
Series A investor
Series B investor

Non
anti-dilution
72.73%
18.18%
9.09%

Weighted Average
Broad based
72.10%
18.88%
9.01%

Non
anti-dilution
$1.00
$0.50
$50,000,000
$25,000,000
10,000,000
5,000,000
2,500,000

Weighted Average
Broad based
$0.95
$0.50
$50,000,000
$25,238,095
10,476,190
5,000,000
2,500,000

Valuation, Purchase Price & Conversion Price

Series A conversion price

Series B purchase price
Series A post-money valuation
Series B pre-money valuation
Series A as-converted common shares
Series B preferred shares
Series B investment

Normal Scenario
Assumptions
Founder's Common share
Series A Investment
Series A Preferred share %
Series B Investment
Series B Pre-money Valuation

8,000,000
$2,000,000
20.00%
$8,000,000
$8,000,000

Company Ownership

Common share
Series A investor
Series B investor

Before
Series B
80.00%
20.00%
0.00%

Non
anti-dilution
40.00%
10.00%
50.00%

Weighted Average
Broad based
39.02%
10.98%
50.00%

Non
anti-dilution
$1.00
$0.80
$10,000,000

Weighted Average
Broad based
$0.8889
$0.7805
$10,000,000

Valuation, Purchase Price & Conversion Price

Series A conversion price

Series B purchase price
Series A post-money valuation

Series B pre-money valuation

Series A as-converted common shares
Series B preferred shares
Series B investment

$8,000,000
2,000,000
10,000,000
8,000,000

$8,000,000
2,250,000
10,250,000
8,000,000

Weighted Average
Narrow based
70.18%
21.05%
8.77%

Full Ratchet
anti-dilution
61.54%
30.77%
7.69%

Weighted Average
Narrow based
$0.83
$0.50
$50,000,000
$26,000,000
12,000,000
5,000,000
2,500,000

Full Ratchet
anti-dilution
$0.50
$0.50
$50,000,000
$30,000,000
20,000,000
5,000,000
2,500,000

Weighted Average
Narrow based
38.10%
11.90%
50.00%

Full Ratchet
anti-dilution
37.50%
12.50%
50.00%

Weighted Average
Narrow based
$0.8000
$0.7619
$10,000,000

Full Ratchet
anti-dilution
$0.75
$0.75
$10,000,000

$8,000,000
2,500,000
10,500,000
8,000,000

$8,000,000
2,666,667
10,666,667
8,000,000

Calculation Details
Assumptions
FS Founder's Common share
OP Series A Preferred Purchase Price
AS Series A Preferred share
NP Series B Preferred Purchase Price
BS Series B Preferred share
AI Series A Investment
BI Series B Investment

Before Series B Financing

Common share
Series A Conversion Price
Series A Common share on As-converted Base
Total Fully Diluted Shares
Series A Post-money Valuation
Non anti-dilution
Common share
Series A Conversion Price
Series A Common share on As-converted Base
Series B Conversion Price
Series B Common share on As-converted Base
Total Fully Diluted Shares
Series B Post-money Valuation
Broad based weighted average
Common share
WP Series A Conversion Price
Series A Common share on As-converted Base
Series B Conversion Price
Series B Common share on As-converted Base
Total Fully Diluted Shares
Series B Post-money Valuation
Narrow based weighted average
Common share
WP Series A Conversion Price
Series A Common share on As-converted Base
Series B Conversion Price
Series B Common share on As-converted Base
Total Fully Diluted Shares
Series B Post-money Valuation
Full Ratchet anti-dilution
Common share
FP Series A Conversion Price
Series A Common share on As-converted Base
Series B Conversion Price
Series B Common share on As-converted Base
Total Fully Diluted Shares

40,000,000
$1.00
10,000,000
$0.50
5,000,000
10,000,000
2,500,000

40,000,000
$1.00
10,000,000
50,000,000
50,000,000

40,000,000
$1.00
10,000,000
$0.50
5,000,000
55,000,000
27,500,000

40,000,000
$0.95
10,476,190
$0.50
5,000,000
55,476,190
27,738,095

40,000,000
$0.83
12,000,000
$0.50
5,000,000
57,000,000
28,500,000

40,000,000
$0.50
20,000,000
$0.50
5,000,000
65,000,000

Series B Post-money Valuation

32,500,000

Loss of value between Series A and Series B

Non
anti-dilution
50,000,000
25,000,000
-25,000,000

Series A post-money valuation

Series B pre-money valuation
Loss in value
Series B post-money valuation
Founder's value after Series B
Series A investor's value after Series B

27,500,000
20,000,000
5,000,000

Shared between:
Founder's value lost
%
Series A investor's value lost

-20,000,000
80.00%
-5,000,000
20.00%

% Ownership
80.00%
20.00%
100.00%

72.73%
18.18%
9.09%
100.00%

72.10%

WP

18.88%

OP ( FS AS ) BI
FS AS BS

9.01%
100.00%

70.18%

WP
21.05%
8.77%
100.00%

61.54%
30.77%
7.69%
100.00%

AI
AS

BI
BS

Weighted Average
Broad based
Narrow based
50,000,000
50,000,000
25,238,095
26,000,000
-24,761,905
-24,000,000

Full Ratchet
anti-dilution
50,000,000
30,000,000
-20,000,000

27,738,095
20,000,000
5,238,095

28,500,000
20,000,000
6,000,000

32,500,000
20,000,000
10,000,000

-20,000,000
80.77%
-4,761,905
19.23%

-20,000,000
83.33%
-4,000,000
16.67%

-20,000,000
100.00%
0
0.00%

% Ownership
Before Series B Financing
Founder's Share
Series A Conversion Price
Series A Common share on As-converted Base
Total Fully Diluted Shares

Non anti-dilution
Common share
Series A Conversion Price
Series A Common share on As-converted Base
Total Fully Diluted Shares Before Series B
Series B Pre-money Valuation
Series B Investment
Series B shares
NP Series B Purchase Price
Total Fully Diluted Shares
Broad based weighted average
Common share
WP Series A Conversion Price
Series A Common share on As-converted Base
Total Fully Diluted Shares Before Series B
Series B Pre-money Valuation
Series B Investment
Series B shares
NP Series B Purchase Price
Total Fully Diluted Shares
Narrow based weighted average
Common share
WP Series A Conversion Price
Series A Common share on As-converted Base
Total Fully Diluted Shares Before Series B
Series B Pre-money Valuation
Series B Investment
Series B shares
NP Series B Purchase Price
Total Fully Diluted Shares
Full Ratchet anti-dilution
Common share
FP Series A Conversion Price
Series A Common share on As-converted Base
Total Fully Diluted Shares Before Series B
Series B Pre-money Valuation
Series B Investment
Series B shares
NP Series B Purchase Price
Total Fully Diluted Shares

8,000,000

80.00%

2,000,000
10,000,000

20.00%
100.00%

$1.00

8,000,000

40.00%

2,000,000
10,000,000
$8,000,000
$8,000,000
10,000,000

10.00%

20,000,000

100.00%

$1.00

50.00%

$0.80

8,000,000
$0.8889
2,250,000
10,250,000
$8,000,000
$8,000,000
10,250,000
$0.7805
20,500,000

8,000,000
$0.8000
2,500,000
10,500,000
$8,000,000
$8,000,000
10,500,000
$0.7619
21,000,000

AI
) BI
OP NP (OP FS AI BI )
OP

AI
BI
OP NP FS AI NP BI OP

OP
NP
10.98%
NV BI
NV BI
NP

AI
BI
AI
BI
FS

FS

OP

NP

(
OP
FS AI BI )
WP
NP
NP
50.00%
OP NP FS AI NP BI OP
NV OP (OP FS AI BI ) AI BI OP
BPBW
100.00%
FS OP (OP FS AI BI ) AI OP FS AI 2
OP ( FS

39.02% WP

FS

AI
BI
OP NP ( AI BI )
OP

AI
BI
AI NP BI OP

OP
NP
11.90%
NV BI
NV BI
NP

AI
BI
AI
BI
FS

FS

OP NP ( AI BI )
WP
NP
NP
AI NP BI OP
50.00%
NV OP ( AI BI ) AI BI OP
BP NW
100.00%
FS OP ( AI BI ) AI 2

38.10% WP

OP

FP NP
NP ( NV BI )
NV BI

AI
BI
FS NP AI BI

NP
NP
NV BI FS NP AI BI
NV AI
FP NP Full
FS
50.00%

8,000,000

37.50%

2,666,667
10,666,667
$8,000,000
$8,000,000
10,666,667

12.50%

21,333,333

100.00%

$0.75

NP

FS

$0.75

Loss of value between Series A and Series B

Non
anti-dilution
10,000,000
8,000,000
-2,000,000

Series A post-money valuation

Series B pre-money valuation
Loss in value
Series B post-money valuation
Founder's value after Series B
Series A investor's value after Series B
Shared between:
Founder's value lost
%
Series A investor's value lost

Weighted Average
Broad based
Narrow based
10,000,000
10,000,000
8,000,000
8,000,000
-2,000,000
-2,000,000

Full Ratchet
anti-dilution
10,000,000
8,000,000
-2,000,000

16,000,000
6,400,000
1,600,000

16,000,000
6,243,902
1,756,098

16,000,000
6,095,238
1,904,762

16,000,000
6,000,000
2,000,000

-1,600,000
80.00%
-400,000
20.00%

-1,756,098
87.80%
-243,902
12.20%

-1,904,762
95.24%
-95,238
4.76%

-2,000,000
100.00%
0
0.00%