How Value8 Does Exit Waterfall Modeling

An exit waterfall is only useful if it reflects what a company's cap table actually says, for every class and every holder, not a simplified approximation of it. Value8's exit scenario modeling runs directly against a company's live cap table data, so the terms the calculation uses are the same terms recorded on each share class, not a copy that can drift out of sync.

This page explains what that looks like in the product. For background on how exit waterfalls and liquidation preferences work generally, see what an exit waterfall is.

Start from one number: the exit value

Modeling a scenario starts with entering a single exit value, the hypothetical sale or transaction price for the company. From there, deal-specific adjustments, such as transaction expenses, taxes, debt repayment, a working capital minimum, severance, and any escrow or carveout, can be entered to arrive at the actual net proceeds available to distribute, rather than treating the headline exit value as the number that gets divided up.

Each class's real terms, applied automatically

Once net proceeds are set, Value8's waterfall engine applies every share class's actual recorded terms, pulled from the cap table rather than re-entered for the scenario:

• Seniority and stacking order, including senior tiers that are paid in full before a junior tier sees any proceeds, and pari passu tiers that share a shortfall proportionally. Seniority order can be reviewed and adjusted directly in the scenario, and the assumptions that drive it are shown alongside the result rather than hidden inside the calculation.
• Each class's liquidation preference type, non-participating, participating, or participating with a cap, and its preference multiple, applied exactly as recorded on the class.
• The greater-of decision, evaluated independently for every affected class at the exit value entered: whether that class is better off taking its fixed preference or converting to common and being paid as-converted. The engine runs this decision itself rather than requiring it to be worked out by hand.
• Participation and caps, so a participating class continues to share in remaining proceeds after its preference is paid, up to its cap if one applies, exactly as its terms specify.

Breakpoints: where the outcome changes

Alongside a single exit value, Value8 shows a breakpoints analysis, the exit values at which a class's outcome changes, most notably where a class's greater-of decision flips from taking its preference to converting to common. This turns the waterfall from a single-point answer into a view of how the outcome shifts across a range of possible exit values, which is the more useful question when a company is still some distance from an actual transaction.

Per-stakeholder proceeds, not just per-class totals

The result of a scenario is shown at the level that actually matters to the people asking: what each individual stakeholder would receive, down to vested and exercised option holders, not only the total paid to each class. Proceeds attributable to common stock are also broken out separately, so it is clear how much of the deal value actually reaches common and option holders after every preference and participation term ahead of them has been satisfied.

A projection, not a change to the live cap table

Exit scenario modeling is a what-if calculation. Running a scenario, including saving it for later reference, does not change a company's actual, live cap table in any way; it is a projection built from that cap table's current data at the time the scenario is run.

Grounded in the same cap table, everywhere

The terms a waterfall scenario applies, liquidation preference type, multiple, cap, seniority, and conversion ratio, are the same terms recorded once on each share class and used everywhere else Value8 reads that class, including the per-share value the company's own 409A valuation establishes for its common stock. That consistency is what lets a hypothetical exit scenario be compared meaningfully against where the company's valuation already stands.

To see this against your own cap table, explore pricing or get in touch.

This describes how Value8 supports exit waterfall modeling. It is general information about the product and about how liquidation preferences work, not legal, tax, or financial advice about any specific transaction.