Exit waterfall calculator

What are the benefits of understanding your exit waterfall?

• Understand the outcome of various exit scenarios, for founders, team members and investors.
• Make informed decisions before committing to raising equity capital.
• Model different scenarios to understand the long-term impact of diluting shareholders’ equity.
• Maintain a clear understanding of shareholders’ equity and entitlements over time.
• Know your startup’s value when talking to VCs and when approaching exit discussions.
• Understand what your ‘ideal’ exit looks like, and how to get there.
• Assess the value of employee share schemes, which can help attract quality talent.
• Keep shareholders information up to date, ensuring you have your ducks in a row if and when you come to an exit event.
• Inform strategic decision-making, and focus on activities that increase exit value for all shareholders.

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Example:

Imagine a hypothetical ecommerce startup, providing a marketplace for second-hand and ethically sourced clothing. The business raised $150,000 in angel funding to get off the ground, at a valuation of $750,000 (selling 20% of the business).

Later, it raised $1 million in Series A funding, at a valuation of $10 million (selling another 10% of the business).

The two co-founders still share ownership of the other 70% of the company, which is now valued at $20 million, and growing at a rate of 50%, year-on-year.

A global retailer has expressed interest in acquiring the startup for $20 million.

In this scenario, the angel investors, combined, would be repaid their initial $150,000 investment, plus 20% of the acquisition price – $4 million.

The Series A investors would be entitled to 10%, or $2 million, and would also be returned their initial investment of $1 million.

In one year’s time, however, the founders and investors predict the business will be worth $30 million.

Based on this, they decide not to accept the acquisition offer, and instead continue with their business plan, anticipating a more lucrative exit further down the track.

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How Tractor can help

Tractor Ventures offers non-dilutive debt funding, designed specifically with startups, scaleups and other tech-enabled businesses in mind. 

Our loans can provide an alternative to equity funding, allowing businesses that are generating revenue to invest in activities to boost short-term growth, without giving up any ownership in the company.

However, Tractor loans are also just another tool in the founders’ toolkit, bringing elasticity to the funding journey.

Non-dilutive funding can help improve valuation ahead of a planned equity raise, or be used in conjunction with equity funding for different use cases.

Exit waterfall modelling can help founders consider the effects of equity fundraising and debt funding on a future exit event, ensuring you find the balance that’s right for you, your business, your team and investors in the long run.

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Weighing up your funding options? ‍

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