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Capital Waterfall Model

Capital Waterfall Model for Financing and M&A

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Model security-holder payouts across financing and M&A scenarios, including preference payments, conversion rights, dilution, warrants, and options.

See why the result can differ from fully diluted ownership.

The Challenge

Understand the Financial Ramifications of Term Sheet Agreements

If you're estimating your expected payout based on fully diluted ownership, you could be in for a surprise. When your cap table includes convertible notes, preferred stock, warrants, and options, the math gets complicated fast.

We Supplement Other Cap Table Management Tools

Most cap table software handles ownership tracking well, but complex legal provisions require specialized modeling.

We Support Legal Counsel

Understanding the legal provisions is essential, but translating them into accurate financial projections requires a different skill set.

We Help You Make Decisions with Scenario Planning

We can help you evaluate 'what-ifs?' across different valuations, term sheets provisions, and more.

Use Cases

Two Situations. One Solution.

Whether you're selling your company or preparing a funding round, reports from the Capital Waterfall Model shows exactly what consideration each security holder will ultimately receive after factoring in investment document provisions.

M&A Analysis

How much cash will you put in your pocket if you sell the company?

  • Distribution waterfall by valuation scenario
  • Fully diluted vs. actual payout comparison
  • Security class distribution charts
  • Stakeholder-level breakdowns

Financing Analysis

How will this potential financing deal impact your future payout?

  • Sell now vs. finance & sell later comparison
  • Dilution impact by security holder
  • Term sheet scenario modeling
  • Board and stakeholder approval reports

Sample Reports

See the Insights You'll Receive

Our reports transform complex cap table data into clear, actionable analysis. These are just a few of many.

Waterfall Scenarios

See how much each sub-class of securities receives at different valuations of the company. Each scenario shows how security holders maximize their economic returns by optimally exercising conversion rights.

Key Insight:

Convertible notes may elect to stay as debt at lower valuations but convert to equity as valuation increases.

Distribution Waterfall

See the proceeds each security sub-class receives at a particular valuation, along with the logic for how each security exercises its legal rights, all on one page.

Key Insight:

The payout to each security holder is interdependent on the legal rights of all other security holders.

Fully Diluted vs. Waterfall

Compare payouts by security class based on fully diluted calculation versus the actual waterfall after security holder legal rights are implemented.

Key Insight:

Often convertible notes and preferred stock can claim a larger portion of the valuation than their percentage ownership, leaving option and common stock holders with far less than anticipated.

Financing Scenario Analysis

Evaluate a sell now vs. new financing and sell later decision, factoring in dilution from new investors and expected company growth from the new capital.

Key Insight:

The "smaller slice" of existing holders may be worth more later as a result of the "larger pie," but by how much, and for whom?

Benefits

Make Better Deals with Better Analysis

  • Avoid Bad Deals
    The deal you make today determines what you put in your pocket later.
  • Gain an Information Advantage
    Be confident in what you're agreeing to before you sign.
  • Reduce Deal Costs
    Validated data supporting each report reduces back-and-forth with advisors.
  • Optimize Deal Structuring
    Understand the impact of each provision on stakeholder payouts.
  • Accelerate Closings
    Build consensus from key stakeholders with clear, accurate reports.
  • Professional Deliverables
    Reports designed to support your entire deal team, from board to counsel.

FAQ

Frequently Asked Questions

What is Capital Waterfall?

TILT Analytics is a professional services firm delivering the most accurate and comprehensive reports to guide senior executives and/or their advisors in financing transactions and M&A deals. Our Capital Waterfall Model is configured with your company's actual securities data and legal provisions so that our proprietary Rational Investor Algorithm can predict how each security holder will apply their legal rights to maximize their own economic return.

What makes the Capital Waterfall Model unique?

Our Rational Holder Algorithm simulates what happens at the closing table with each party vying to maximize their share of the proceeds by applying their legal rights. The model automatically and concurrently applies for every security the impact of accrued interest & dividends, conversion ratios, anti-dilution adjustments, vesting, net-exercise calculations, and more. As a result, we accurately model the actual proceeds each security holder receives, which can be far different than assumed based on fully-diluted percentages.

Who is the Capital Waterfall Model ideal for?

We work with executives of late-stage venture backed companies, partners of law firms, and other corporate advisors. We focus on businesses that have completed multiple rounds of financing where different investors have complex and conflicting rights and interests. If your cap table includes convertible notes, preferred stock with preferential treatment, warrants, or options vesting, then fully-diluted ownership is likely a misleading metric.

When is the Capital Waterfall Model relevant for your company?

The Capital Waterfall Model is most relevant when planning a new financing capital raise (because the deal you make today has ramifications when the business is sold) or when evaluating a possible M&A transaction.

Doesn't my cap table software already do this?

Popular cap table management software systems are capable of running projections for companies with simple cap tables, but when there are multiple financing rounds involved with each investor entitled to certain legal rights, such as preference payments, anti-dilution, dividends, debt to share conversions, these existing tools are unable to properly calculate the impact of such provisions on how much cash you put in your pocket.

How does the model integrate with my company's cap table?

Simply export your company's security data from Carta, Pulley, or other cap table management software to Excel and send it to us. We can load your securities list into our scenario modeling engine, and our legal review team can work with you or your law firm to discuss security class attributes and buried legal rights.

How reliable are the reports?

We understand that deal leaders need accurate information that can be clearly reviewed by counsel and deal advisors. We provide supporting validation reports showing the calculation logic used in generating each deal report. These reports enable the entire deal team to drill down and verify any assumption that impacts who gets what and why in the distribution waterfall.

What does it cost?

The implementation cost depends on the complexity of the cap table, the quality and organization of the investment documents, and the number of unique formulas to be configured into the Capital Waterfall Model. We can provide a proposal based on these factors. Schedule a free call to discuss your specific situation.

Let's Discuss

Schedule a free consultation to discuss your cap table and see how we can provide clarity for your next financing or M&A transaction.

What You'll Get

  • Free 1-hour consultation
  • Quick turnaround on drafts & modifications
  • High efficiency working relationship