Waterfall Analysis: Startup & VC Context
OCTOBER 28, 2020
Aleksey Krylov
• 20+ years of experience
• CFO for private/public companies with focus on strategic transactions (M&A, JV, fundraise)
• 12 years with 4 different family offices: VC, LBO, structured and distressed investing: 25 deals, $500M+ invested
• Started career in investment banking
• MBA Columbia Business School, BS Babson College, CFA Charterholder
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Waterfall analysis
TOC
Frequent structures
Example
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Waterfall
“As the name implies: The analysis showsthedistributionofvalueata liquidity event”
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Liquidity Events
• IPO
• M&A
• Liquidation…
“Startups work hard and for a long time to strike goldonanIPOandM&A,andunfortunately liquidation can be forced on them quickly,”
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Clear cut vs. contested
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TOC
Waterfall analysis Frequent structures Example
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Convertiblesnotes/SAFEs
Preferred
Options/warrants
Seniordebt/seniorsecured debt/debentures
“All securities have a role to play, and experience finance professional can use them skillfully to align interests of various stakeholders,”
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Securities
Common RSUs
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Founding “round”
Financing transactions –startups
Friends/family
Seed/angels – converts/safes
“Not all funding rounds follow this sequence,butthereisalogictothis progressionwhichreflectsthe company’s growth”
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Series A – preferred Series B – preferred Series XYZ… or IPO
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