A company may be “cash insolvent” but have assets which exceed their liabilities.
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The most sophisticated spreadsheets will also take into account whether options and warrants are in the money at certain transaction values, which will affect whether or not they are exercised, which will then affect the price per share.
These circular formulas are best left to CFOs with strong math skills or attorneys that deal with these spreadsheets all the time.
Participating preferred stock is favored by investors because they will receive a preferential return over both low and high exit transaction values.
An argument in favor of participating preferred stock is that if a company is sold shortly after the investment, the founders may receive a significant return on their investment (since they have typically paid a much lower price than holders of preferred stock) while the holders of preferred stock may receive little or no return on their investment, particularly where the liquidation preference is 1x.
“Participating” preferred also typically receives an amount equal to the initial investment plus accrued and unpaid dividends upon a liquidation event.