How to Determine an Investor's Return in Series Funding?

TheFlyingKiwi's picture
Rank: Baboon | 142

Hey Monkeys - hoping you can help me out with this one.

Question - how to create a model/conceptually grasp the return of an investor's (VC, family office, etc) series A/B/C funding during the event of an IPO, asset acquisition, or buyout.

If it helps, the situation I have in mind is a pre-revenue, private biotech company. Theoretically, the management team should have their own "valuation" of their company, and a set number of shares distributed between the employees. So would there be an internal share price that's set, and determines how many shares the investor receives?

Not sure how to figure this out..

Thanks for the help

Comments (6)

Sep 6, 2019

What I'm looking for is cap tables and waterfall analyses... Gonna be doing a lot of reading the next couple of days.

Sep 6, 2019

Macabacus has a pretty decent model template if you haven't checked it out yet. Could be helpful as a starting point.

Sep 6, 2019

This is perfect! Appreciate the reply.

Sep 6, 2019

The answer for this really depends on how all their prior funding rounds were structured. I would definitely reference the previously mentioned link but shares often get diluted amongst all (if done fairly). VCs usually have clauses about this in their terms sheet that they might not want to be diluted etc no matter who else comes in at a later stage. The company/founders then have to decide how these will be diluted, if that.

    • 1
Sep 6, 2019

Thanks for the response! I'm out of daily pm's but will send you one tomorrow. How do VC's prevent dilution? Is there such a thing where their number of shares increase in the future to prevent a drop of company ownership?

Sep 6, 2019