Compared to more traditional firm structures, legal, regulatory, and financial matters play a much larger role in the determination of value of equity securities for venture-backed companies. In "Preferred Stock: Valuing Multiple Layers of Equity Securities in Venture-Backed Companies" expert Joel Johnson dissects the determinants to equity value in venture-backed companies to show how to properly assess the value of both preferred and common shares. His presentation addresses equity values and their valuations, including a discussion of which valuation techniques are most appropriate for this unique setting.

• Features of preferred stock which affect their value:
  • Liquidation preference
  • Cumulative and non-cumulative dividends
  • Participation and participation caps
• How to identify each of these features in a company's articles of incorporation
• Review "tranched" preferred stock and a model for separating the value of the forward contract from the issued security
• Review a stock purchase agreement and other legal documentation to identify tranche amounts, tranche milestones and "pay to play" provisions
• How to build a "waterfall schedule" showing the payout of equity to each class of preferred and common stock
• How to calculate equity "breakpoints" for an option-pricing model
• Review the major methods for allocating value among preferred and common securities: the PWERM, the OPM and hybrid
• Review when an OPM backsolve method is and is not appropriate
• Alternatives for addressing the value of preferred warrants
• How to determine if the valuation model's results are reasonable

• Identify the drivers of value for equity securities in venture-backed companies
• Define how these drivers are determined and recorded and identify how to put these resources to use in the valuation process
• Associate traditional equity modeling and valuation techniques with assignments for venture-backed companies
• Identify how to assess the reasonableness of a valuation model's results