What does a liquidation preference spreadsheet look like?
November 17, 2008
I’ve had some comments and emails asking if I would publish a liquidation preference spreadsheet. Basically, when a company is thinking about an M&A deal, the first thing that everyone wants to know is how much money does everyone get from the merger proceeds.
The spreadsheet is fairly straightforward. You can plug in the deal value (merger proceeds) and spreadsheet automatically figures out exactly how much each founder gets and what the return per share is for each class/series of stock. The spreadsheet determines if a series of preferred stock should convert based on whether the series would receive more merger proceeds as a holder of preferred stock or common stock.
The spreadsheet also takes into account whether options and warrants should be exercised or not. For example, if the deal value is too low, the common stock merger consideration price per share may be lower than the exercise price for options. Then the options will not be exercised. Whether the options are exercised or not will affect the number of outstanding shares of common stock and therefore, the common stock price per share.
This spreadsheet assumes three rounds of financing with non-participating preferred stock, a couple of tranches of warrants (as a result of a bridge loan or two), and options with various exercise prices. In my redacting of information in the spreadsheet, I’m sure that there is something broken.
I might post a spreadsheet in the future with more bells and whistles, such as the ability to easily manipulate the formulas for senior preferred and participating/non-participating preferred, as well as graphs to show the merger proceeds per share as aggregate merger proceeds increases. Please don’t expect any support or explanation on how the spreadsheet works. I already told someone who had emailed me that I might consider providing a tutorial if she brought my a decaf soy latte and a Sprinkles cupcake some afternoon.