Venture Capital Model
Hi Guys,
With respect to calculation of returns on a venture capital model, specifically for series A funding, I have a few questions:
- Is the allocation of Equity All to preferred? What is a range of acceptability for preferred returns (specifically on series A consumer brands)
- Are there generally anti-dilution provisions between rounds for existing capital
- When does exit/partial exit for a series A fund occur generally? Subsequent funding rounds, eventual ultimate buyout or IPO exit etc (or do you just assume a terminal value at the subsequent round etc)
- Am I overthinking it? Do series A funds even build out expected returns models or is it all about market sizing and thinking about downside scenarios/potential areas of liability.
Depends on the deal structure. Typically you will see Series A investors receive Series A Preferred Shares. IRR of >20% is good enough. Most firms will target ~30% IRR.
Yes, investors will generally ask for rights to maintain their ownership stake. Dilution provisions are rarely full ratchet anti-dilution clauses (these are the worst and are a red flag), but are usually weighted averages. Other typical terms: tag along rights, ROFR, ROFO, pay to play, etc.
M&A is still the most common exit path. Secondary action is highly dependent on geography.
I have not come across a Series A VC that does not do their own returns analysis. Only a mediocre Series A VC would not do so.
I just looked at a sample cap and waterfall, so now this makes more sense. However, I have another question - do you typically include a 3-statement model in the output for a VC case or is it just the cap table with an exogenously assumed precedent valuation at exit?
It just seems like a 3-statement model would appear so ridiculous (zero CF, baloon at exit, all the more difficult to flex the exit timeline in various cases)
Esse fugit voluptatem id ipsum perferendis architecto hic. Officia ullam et dicta distinctio sint voluptatem nam. Illo dignissimos aperiam sint. Rerum voluptatum neque maxime.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...