Aleksey Krylov Waterfall Analysis Case Study 07-21-2023

1. Aleksey Krylov
• 20+ years of experience
• CFO for private/public companies with focus on strategic
transactions (M&A, JV, fundraise)
• 12 years with 4 different family offices: VC, LBO,
structured and distressed investing: 25 deals, $500M+
invested
• Started career in investment banking
• MBA Columbia Business School, BS
Babson College, CFA Charterholder
•
1

2. Business will drive
financing structures
Sunrun example:
1. Seed
2. Series A
3. Senior Secured Debt
2
“Particulars of a funding round often reflect strategic
goals the company is targeting in the next 12-18
months,”
- Aleksey Krylov

3. TOC
3
Waterfall analysis
Frequent structures
Example

4. Scenario #1
1) Founder launched the business with $0 – CEO, Sales & Marketing
◦ 1.1) Founder found a co-founder, took $0 – CTO – for 35% of the business
2) Angel investors put in $500,000 via convertible note, capped at $10M, 5%
interest
3) Series A investors put in $5M via pref @$15M pre
4) Series B investors put in $20M via pref @$65M pre
5) IPO investors put in $50M via common @$100M pre
4
“One has to consider
several funding paths and
optimize transaction
structuring for downside
risk,”
- Aleksey Krylov

5. Scenario #2
5
1) Founder launched the business with $0 – CEO, Sales & Marketing
1.1) Founder found a co-founder, took $0 – CTO – for 35% of the business
2) Angel investors put in $500,000 via convertible note, capped at $10M, 5%
interest
3) Series A investors put in $10M via pref @$50M pre
4) Series B investors put in $10M via pref @$25M pre
5) IPO investors put in $50M via common @$100M pre
“Sometime the startup
needs to raise capital at the
most inopportune time and
incur strong dilution,”
- Aleksey Krylov

6. Protections
ROFR ?
Anti-dilution
◦ WA?
◦ Full-ratchet?
Dividends ?
6
“Negotiated protections can help protect
investor rights and economic interest,”
- Aleksey Krylov

7. Scenario #3
1) Founder launched the business with $0 – CEO, Sales & Marketing
1.1) Founder found a co-founder, took $0 – CTO – for 35% of the business
2) Angel investors put in $500,000 via convertible note, capped at $10M, 5%
interest
3) Series A investors put in $10M via pref @$50M pre
4) Series B investors put in $10M via pref @$25M pre
5)
7
“Capturing upside through creative
structuring is a balancing act
between being greedy and getting
deal done,”
- Aleksey Krylov

8. Scenario #3 – liquidation
• IP Value sold for $12.5M
• Liquidation – waterfall triggered
• Series B gets $10M + (remember dividends and/or liquidation preference)
• Series A gets $2.5M
• Angels get zero
• Common gets zero
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“No one wants to hit the brick wall
but it happens…,”
- Aleksey Krylov