Anybody have a minority growth equity model example / test? Interviewing soon

Given the test is only 90 minutes, it will likely be a pretty straightforward linking of the statements and calculating a MOIC and IRR. However, there are a few things that growth equity firms put into their modeling test that deviate from standard LBO models: (1) Primary vs. Secondary Equity Purchases and (2) Liquidation Preferences.

I've provided example questions and solutions below for both of these features. Also, I'm always happy to help, so let me know if you have any questions. If you want the Excel and case study that I used for the below exhibits, just PM me (open to anyone).

Special Feature 1: Primary vs. Secondary Equity Purchases  

Description

Primary equity involves the issuance of new equity by the company, thereby increasing the company’s equity value. A secondary equity transaction consists of the purchase of existing shares from current investors (usually at a discount to pre-money equity value) in the business and therefore does not increase the equity value of the company

Secondary share purchases from employees/founders do not come with liquidation preferences or any other special terms since they are just common shares. Accordingly, firms that have conviction on the upside potential of the investment might want to purchase more secondary shares (as they capture upside through the discounted price of the shares)

Modeling Prompt – Question 

It has been indicated that our firm could participate in a Series D round that is expected to be comprised of $50 million of primary equity issued at a $500 million pre-money valuation. Additionally, one of the founders has indicated he is willing to sell $30 million of secondary equity to our firm at a $350 million equity value.

After participating in both the primary equity issuance and secondary sale, how much of the company would our firm own on a post-money basis?

Modeling Prompt – Solution

Special Feature 2: Liquidation Preference

Description

A liquidation preference is an instrument typical in early-stage growth investments, whereby a new investor is guaranteed a minimum return on their investment at the exit. The liquidation preference is junior to all debt-like instruments in the capital structure but effectively ranks senior to ordinary equity.

Modeling Prompt – Question 

Building off the example above, your firm is considering asking the company to add a 2.0x liquidation preference to the primary equity portion of the investment (i.e., the $50 million). 

To assess the value of a 2.0x liquidation on the primary equity component, please contemplate a downside scenario where the business is sold for $600 million. Calculate our firm's return on investment (MOM and IRR) both with and without the 2.0x liquidation preference on the primary equity component.

Modeling Prompt – Solution