Question

1. Assuming that all other Term Sheet provisions are equal, the founder will want to grant her investor which one of the following preferred stock preferences:

		Participating Preferred Stock with a 1x liquidation preference
		Non-participating Preferred Stock with a 1x liquidation preference
		Participating Preferred Stock with a 1x liquidation preference and a 3x cap
		Cannot determine with the information provided

2. In the event of a down round, how well do anti-dilution provisions work in practice?

		They are illegal provisions that are not enforceable in court
		They are enforced to the letter of the law in every situation
		While enforceable, investors holding the right more often than not are forced to waive the right when they face a down-round.
		Full ratchet anti-dilution provisions are unenforceable, but weighted average anti-dilution provisions are enforceable.
		Weighted average anti-dilution provisions are unenforceable, but full ratchet anti-dilution provisions are enforceable.

3. Venture capital investors typically prefer to hold which security?

		Participating convertible preferred stock with a 2x cap
		Non-participating convertible preferred stock
		Convertible debt
		Uncapped participating convertible preferred stock
		Common Stock

4. Ginormous Bank has underwritten the IPO of LMNOP Corporation. The bank agreed to purchase 2,000,000 shares of LMNOP at a price of $10 per share and sell them to the public at $11.00 per share. The issue came to market, but Ginormous Bank could only find buyers for 1,800,000 shares at $9.50 per share. Ginormous then pays $20 million to LMNOP in accordance with the underwriting agreement. What kind of underwriting was this?

		Dutch auction
		Firm commitment underwriting
		Best efforts underwriting
		Private Placement
		Standby underwriting

Answer 1

1.Non-participating Preferred Stock with a 1x liquidation preference. The founder will look for maximum control

2. They are enforced to the letter of the law in every situation as both full rachet and weighted average anti dilution are enforceable

3. Participating convertible preferred stock with a 2x cap as it provides both with leverage and preferred stock.

4. STANDBY UNDERWRITING as investment Banks is buying remaining of the shares.