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Valuing common stock in an early-stage company that has completed a Series A preferred stock financing can be challenging. According to the AICPA’s “cheap stock” practice aid, many of the conventional valuation techniques, such as the discounted cash flow method and the guideline public company method are not applicable for early-stage companies. Instead, appraisers are advised to use the option-pricing method to backsolve to the Series A value. That calculation requires an in-depth understanding of the Series A terms. Join Joel Johnson for a review of how Series A impacts the value of early stage companies.
Program Agenda
Review data from more than a dozen Series A financings by life sciences companies to summarize the terms of a typical deal
Review preferred features and assess their impact on value
Cumulative dividends
Participation rights
Participation caps
Review “tranched” financings
Estimating the value of forward contracts and options to invest
Illustrate how each of these features affects common value
Learning Objectives
Describe the terms of a typical Series A financing for a life sciences company
Recite the meaning of preferred features and how they influence common value
Describe techniques to evaluate and adjust for tranched financings
List actors that influence the value of common relative to preferred
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