This Newsletter continues Valuecruncher’s series on the valuation of early stage companies. We have previously covered alternative methods for valuing an early stage company (here and here) and now look at how that valuation is distributed across different equity instruments. Early stage companies generally have a number of different equity instruments in their capitalisation tables. Typically Founders will have common stock, employees will hold stock options and Investors (Venture Capitalists) will hold preferred stock. Each of these instruments represents different claims on the company’s equity.
Part 1 of the analysis of the liquidation preferences outlines common preference terms in early stage term sheets and looks at their payoff profiles. An interactive Excel workbook that allows users to consider the payoff profiles of different liquidation preferences accompanies this analysis.
Excel Workbook: Valuecruncher Preference Stock Payoff Tool *
*This workbook uses Macros. If Excel’s macro security is set to High the functionality will be limited. To utilise the full functionality of this workbook:
1. On the Tools menu, click Options.
2. Click the Security tab.
3. Under Macro Security, click Macro Security.
4. Click the Security Level tab, and then select the Medium security.
5. Excel must be restarted before these changes to take effect.
6. When opening the workbook select enable macros.