Preparing for a VC Interview with Non-Finance Background: Some questions

**Q: How do you calculate how much money is in the Preference Stack? ** I'd look at it this way. Company 1: Current # of shares outstanding = 500,000 (Probably only Founders common shares) Seed Round: $1M Preferred @ $1M Pre. Price Per Share = $2 ($1M Pre/500,000 shares) Preferred Shares Purchased in Seed round = 500,000 ($1M Raising / $2 per share) Company Post Valuation = $2M (1M Pre + $1M Raised) Dollars Invested in Preferred = $1M (50% of Company = 500k Preferred/1M Total shares)

Series A: Current # of shares outstanding = 1M (500k Common, 500k Preferred Series A Round: $6M Preferred @ $10M Pre. Price Per Share = $10 ($10M Pre/1M shares) Preferred Shares Purchased in A round = 600,000 ($6M Raising / $10 per share) Company Post Valuation = $16M (10M Pre + $6M Raised) Total Dollars Invested in Preferred = $7M (1M Seed + 6M Series A) (68.75% of Company = 1.1M Preferred / 1.6M total shares ) VALUE of Preferred Equity = $11M (68.75% of Preferred * $16M Post Valuation Note that those who invested $1M in the seed round, their shares are now worth $5M, a 4x growth in value.

So, based on this example, it depends on the price per share at each round to calculate the total # of dollars invested in the preferred stack.

Q: Price per share = post-money valuation at the time / number of shares? This is post round price per share... the Price per share that determines what you invest in should be Pre-Money / # of shares

Q: LTV/CAC? How should I be thinking about this, particularly customer acquisition cost? This ratio heavily depends on the business model. I've seen companies anywhere between 2x and 20x LTV to CAC. CAC is normally calculated as any $ spent on Sales or Marketing (And any other variable costs) for a particular period, then divided by the # of new customers for the period

Q: What impact does dilution have on future financing? There isn't much of an impact on future financing, but both investors and founders want to ensure they maintain a much portion of equity as possible. That's why investors normally reserve "pro-rata", additional capital for when the company raises another round of equity to maintain their current % share. Companies with high CAPEX, or require large amounts of working capital (non software companies), will likely need to raise more money, and more often in order to scale. At a certain point, it would make sense for them to finance with debt, but this is normally not preferred at earlier stages since there is a lot of risk to have that liability.

To talk about dilution, look at the example I posted above: The investors in the seed round at one point owned 50% of the company. After the series A round, they own 31.25% (500,000 Seed Shares / 1.6M Total shares). This is where pro-rate comes in. If those investors wanted to ensure they kept 50% of the company, they would have needed to purchase 300,000 shares in the series A (for $3M), so they basically participated in half of the total Series A round. The seed investors would then have 800,000 shares, which maintains their 50% equity stake (800k Seed Investor Shares / 1.6M Total shares)

Hope this helps!