Waterfall Analysis

The waterfall analysis is a tool to help investors and shareholders create financial models of the total amount each shareholder would receive upon exit of the company.

The waterfall analysis is a tool to help investors and shareholders create financial models of the total amount each shareholder would receive upon exit of the company. These cap table models undergo complex calculations to allow users to view possible exit scenarios, which they are normally unable to do by themselves.Of course the accuracy of the waterfall analysis depends on the calculations of the model.

Key Features of Eqvista Waterfall Analysis

The waterfall analysis at Eqvista utilizes state of the art financial models to calculate these payouts for each shareholder. We not only pay attention to the common share and option holders from your company’s cap table, but also incorporate a unique waterfall chart for investors during the preference share rounds.

The key features of our waterfall analysis includes:

  • Instantly reactivity for efficient analysis
  • Multiple inputs for exit value, exit date, and possible transactions fees
  • Cash Dividend option for preference shareholders
  • Converted liability option for note holders
  • Advanced calculations for preference rounds
  • Preference liquidation breakdown of preferred investors
  • Waterfall chart for preference rounds
  • Cap Table comparison of payout values

These features are nicely incorporated together in an easy-to-use interface for exit scenarios. This interface was designed to be user friendly as well as encompass multiple functions for our users to help in their cap table management.

Waterfall Analysis

We believe our design allows users to easily view the results of the exit scenarios, as well as display all the information needed to review the payout for each shareholder.

How to use the Waterfall Model in Eqvista?

Eqvista Waterfall Analysis
Eqvista helps you in your cap table management and the future growth of your company. Try out Eqvista Waterfall Analysis, it is free!

We have created a sample company to show how to use the waterfall model on Eqvista. The company, Finance Inc, has the following information:

Of the 10,000,000 authorized shares, the company ownership is divided into:
20% ownership of 2,000,000 Common shares for $20,000
25% ownership of 2,500,000 Preference A shares for $2,500,000
25% ownership of 2,500,000 Preference B Shares for $2,500,000
15% ownership of 1,500,000 Preference C Shares for $1,500,000
5% ownership of 500,000 Warrants
10% ownership of 1,000,000 Options
One Convertible note for $3,000,000

The preference share classes were further classified as:

  • Preference A with a Liquidation Multiple x1
  • Preference B with a Liquidation Multiple x2
  • Preference C with a Liquidation Multiple x3

The cap table of this company on the Eqvista App is as below:

Waterfall Analysis

With all the information and breakdown of the company shareholders in place, we can now plug in the numbers.

Scenario 1

The first scenario with an exit value of $10,000,000, the whole value of the company would go to the preference shareholders of the company. While the value of their contributions is only $6,500,000, they would take the total $10,000,000 as their investments had preference liquidation multiples, which means their investment is worth 1, 2, or even 3 times their initial investment.

The inputs and visual breakdown of this value is as below:

Waterfall Analysis

Going through the waterfall analysis, the exit value would first flow to the Preference A shareholders, which had an initial investment of $2,500,000 with a liquidation multiple of 1 (1 times their initial investment). The leftover $7,500,000 would then carry to the Preference B shareholders, who would take $5,000,000 ($2,500,000 x liquidation multiple of 2). The final $2,500,000 would flow to the Preference C shareholders. Even though these preference shareholders could take a total of $4,500,00 ($1,500,000 x liquidation multiple of 3), they would only take $2,500,000, as only this remains left over from the total value. This would leave no value for the rest of the shareholders of the company.

The results of this, as well as the comparison to the company’s cap table, is shown below:

Waterfall Analysis

Scenario 2

In the second scenario, we would increase the exit value to $20,000,000. This would result in $9,500,000 going to the preference shareholders, and the remaining $10,500,000 going to the other shareholders of the company.

The inputs and visual breakdown of this value is as below:

Waterfall Analysis

Unlike the first scenario, the total preference liquidation would only be $9,500,00, as the Preference A shareholders would choose to wait to receive their share of the company’s value during the common round. This means instead of receiving only $2,500,000 from the exit of the company, they would receive $3,842,309.89 instead, based on their percentage of holdings in the company. The total of $10,500,00 would also be split among the remaining shareholders of the company.

The results of this, as well as the comparison to the company’s cap table, is shown below:

Waterfall Analysis

As you may have seen in the above scenario, the convertible notes worth $3,000,000 only received $1,778,465.99. That is because these were converted into shares and sold based on their percentage of the company’s total value, at a net loss. They would have been sold at a gain with a higher exit value.

With this scenario in mind, the user has the option of considering their convertible notes at cost before the value flows to the shareholders of the company. In this case, they would be given their amount back, and the remaining would flow to the other shareholders, as below:

Waterfall Analysis

These 2 scenarios illustrate how to use the Eqvista waterfall analysis as a financial tool to see the possible exits of your company. We hope our model helps you in your cap table management and the future growth of your company!

Interested in issuing & managing shares?

If you want to start issuing and managing shares, Try out our Eqvista App, it is free and all online!