Company with multiple classes of preferred stock & convertible notes & having milestone-based binary event.READ MORE
The client came to us with a highly complex capital structure which included:
A snapshot of our workings is presented below.
Valuation using Monte Carlo simulation to determine the fair value of embedded derivative.
Monte Carlo Simulation – This is one of the most dynamic models for estimating the value of securities with complex/conditional features. This method involves running a large number of simulations using random quantities for uncertain variables, and looking at the distribution of results to determine the expected value of the security. This methodology allows the modeling of securities with complex terms, where path dependency, floors, caps, triggers, change of control, down round financing provisions can be taken into account. Knowcraft Analytics uses in-licensed Crystal Ball application to run simulations.
To find out the value of bridge warrants issued to investors that had an option to convert into existing round of preferred financing or the next qualified round of equity financing, whichever had a lower issue price, and exercisable in the events of IPO, M&A or expiration (also referred as end of term).
We relied on Monte-Carlo simulation that enables thousands of iterations and maximum possible permutations and combinations to arrive at a probability weighted value of the security. Building the model consisted of following steps:
*Series B/C warrants are defined as Series C warrants in the tables/charts above. However, if no financing occurs before the end of term of the warrants or if the issue price of Series C is higher than that of Series B, the warrants have the right to exercise into Series B.
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