Waterfall Distribution for PE Investments
I have access to cap tables for various companies and am working to create Exit Analyses for each company. The one I am working on right now has four classes of preferred stock. I have created excel formulas that handles the preferred stock distributions fine, but starts to create issues when moving to the common stock distribution.
After each class of preferred stock distributes the baseline return to investors I calculate the baseline return for Common Stock before moving to a pari passu distribution. The problem is how I calculate the baseline return for Common Stock. Because the common stock doesn't have a designated return value I calculate the return based on the number of shares of common stock times the stock price at the given Total Distribution Amount. This works at the beginning but as I scale the Total Distribution Amount up the Common Stock distribution starts to skyrocket as the stock price goes up and therefore the baseline distribution amount goes up.
Does anyone have any ideas on how the Common Stock distribution should be structured so I don't run in to this issue?
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