Understanding Scenarios and Creating Waterfall Scenario

Understanding Scenarios and Creating Waterfall Scenario

• Introduction to Scenarios 

As a founder or an investor, you may be concerned about the dilution impact of future funding rounds or are keen to understand the impact of liquidation preferences on payouts in a hypothetical exit scenario.

Qapita allows you to model various scenarios that help you obtain a clear picture of impact of future events on your company and investment. Our scenario analysis tool uses mathematical and statistical principles that allow you to consider a range of assumptions to fully understand impacts of exit events and funding rounds.

Using scenarios, you can: 

• Analyse payout implication for each investor or by share classes in an exit scenario
• Examine an unfavourable event or a theoretical worst-case scenario to be fully prepared for your future
• Conduct "what if" or sensitivity analysis. A sensitivity analysis allows you to evaluate how different values of one variable can affect
• Examine the impact a funding round can have on existing shareholders, as well prepare price and quantity calculations required for allocation of new equity to incoming investors

There are two types of Scenario analysis:

• Waterfall analysis takes into account liquidation preferences in an exit event. This includes investment returns or capital gains among participants of a group or pooled investment.
• The distribution waterfall defines the pecking order in which distributions are allocated to each individual or entity on the Cap Table.

To access Scenarios, click Scenarios in the menu on the left. By default, some scenarios (by stakeholders) are displayed.

• Creating Waterfall Scenario

The Waterfall Scenario tool in Qapita is designed to help you analyze liquidation preferences for potential company sale or other exit scenarios. This powerful model allows you to evaluate the capital sensitivity of investors versus share class monetary values, project payouts to various investors, and get a comprehensive summary for each security class.

How to Create a New Waterfall Scenario

1. Click Scenarios in the menu on the left.

2. Click Perform New analysis.

       UNABLE TO ADD SCREENSHOTS

3. Select Waterfall.
4. Type the Scenario Name.
5. Enter the proposed Exit Value.
6. Enter the proposed Non-Convertible Debt.
7. Enter the proposed Project Exit Date.
8. Click Perform Analysis.

Moving your cursor over this graph will show you the various possibilities.

The Waterfall Scenario Screen Explained

After performing an analysis, the Waterfall Scenario results page in Qapita portal provides clear insights into projected payouts.

The platform enables you to easily visualize projected payouts based on your chosen settings and assumptions. Here’s a description of the key sections on the Waterfall scenario screen:

Summary

The results are clearly displayed based on your set Exit Value, along with confirmation of any non-convertible debt on the company’s books.

Projected Payouts

The results page displays the projected payouts, which can be viewed either at the individual investor level or by share class level.

Interactive Chart

The interactive chart empowers you to complete sensitivity analysis, allowing you to explore different projected payouts for alternative Exit Values instantly.

Liquidation Preferences and Payout Summary

The liquidation preferences captured for each share class dictate the results shown, and these are summarized comprehensively in the Payout Summary table for easy review.