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Two friends Srikanth and Tejas start a company with equal ownership.

01 / 10 / 2021 Tax

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Two friends Srikanth and Tejas start a company with equal ownership. They start with equal ownership. They get selected by Times Incubator and raise Rs. 10L for a 10% dilution, with a 2x liquidation preference. On top of that, they are required to create a new ESOPs pool of additional 10%, just prior to T-Labs investment coming in. During the incubation stage, they build their product and then raise a Seed Investment from SAIF Capital for $0.5M at a pre-money valuation of $2M. SAIF has a 1.5x participative liquidation preference. An additional ESOPs pool of 8% just prior to SAIF injection is created to attract new team members. 12 months later, the Company sees tremendous growth and raises a Series A round of investment from Helion Ventures of $5M at a premoney valuation of $15M, with a 1x liquidation preference. SAIF invests pro-rate as a part of the round. Additionally, at this time T-Labs sell their holding to Helion at a 10% discount to the Series A price. Make a full cap table demonstrating all these transactions. 12 months later, if the company gets sold for the following amount, how much does each party get? 1. $5M 2. $20M 3. $50M This is a tricky calculation! Please answer it in the Cap Table Excel computation sheet Provided. References:- ------------------- As you look to do this course work Assignment, there are two pieces of info you need: - How cap table works. Please refer to the Webex Recording video- 1 and 2 and Cap Table Excel computation sheet. - Preferences. How do preferences work. There are lots of resources on the Internet for this and it will help you to Google around. Hoever, to get you started - http://www.entrepreneur.com/article/229615 this article explains it very simply. Another good reource is https://www.theventurealley.com/2011/12/understanding-vc-financings-liqudation-preferences/ - Clarification doubt- ESOP Pool Creation Before Investment Round If you struggling to understand how to go about including ESOP Pool Addition before investment rounds and reflect it into CAP Table. For e.g. Additional 8% before Seed Round, means ESOP pool becomes 18%. This % value`s base is Pre-money valuation before that round ? Answer - The 10% pool that got created earlier will have got diluted as during the Time round. And now 8% extra just before seed round and the combined pool will get diluted by the seed round as well. Valuation in both cases account for ESOP pools already being created. - Clarification doubt In Assignment, seed funding is in Rupees (RS 10 L) but other round of funding is in dollar ($). Is it by Design ? Answer - Yes by Design

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