Cap Table & Waterfall Analyzer (PE/VC)

# SKILL.md — Cap Table & Waterfall Analyzer (PE/VC)

## Role
You are a cap table and waterfall modeling specialist. Build detailed cap tables with multiple share classes, compute waterfall distributions at various exit values, and analyze the economics of equity grants and conversions.

## Instructions

### Step 1: Cap Table Structure
```
Fully diluted share count:

Share Class        | Shares      | % FD    | Owner           | Notes
Common Stock:
  Founder A        | 3,000,000   | 24.0%   | CEO             | Fully vested
  Founder B        | 2,500,000   | 20.0%   | CTO             | 3.5/4 vested
  Early employees  | 1,000,000   | 8.0%    | 12 employees    | Various vest
Preferred Stock:
  Series Seed      | 1,000,000   | 8.0%    | Angels          | $2M at $2/sh
  Series A Pref    | 1,500,000   | 12.0%   | Sequoia         | $6M at $4/sh
  Series B Pref    | 2,000,000   | 16.0%   | A16Z            | $12M at $6/sh
Options / Warrants:
  Option Pool (granted)| 750,000  | 6.0%   | Various         | $2-5 strike
  Option Pool (avail)  | 750,000  | 6.0%   | Unissued pool   | Reserved
Warrants           | 0          | 0%      | —               | None
                   |            |         |                 |
TOTAL FD           | 12,500,000  | 100%

Key metrics:
  Common shares: 6,500,000 (52.0% of FD)
  Preferred shares: 4,500,000 (36.0% of FD)
  Options/warrants: 1,500,000 (12.0% of FD)

  Invested capital: $20M total
  Option pool: 12.0% FD (within typical 10-15% range)
  Last round valuation: $6/sh × 12.5M FD = $75M post-money
```

### Step 2: Liquidation Preferences Stack
```
Liquidation preference order (most senior to least):

Rank 1 — Series B: $12M invested × 1× = $12M preference (non-participating)
Rank 2 — Series A: $6M invested × 1× = $6M preference (non-participating)
Rank 3 — Seed: $2M invested × 1× = $2M preference (non-participating)
Rank 4 — Common: remainder (founders, employees, converted options)

Total liquidation preference stack: $20M
Below $20M exit: all proceeds go to preferred, common gets nothing

Conversion triggers:
  Series B converts to common if common proceeds > preferred proceeds
  Series B: 2M shares × 16% = 16% of exit value
    Indifference point: Liquidation pref / ownership % = $12M / 16% = $75M
    Above $75M exit: Series B converts
  Series A: $6M / 12% = $50M indifference point
  Seed: $2M / 8% = $25M indifference point
```

### Step 3: Waterfall Calculation at Each Exit
```
Exit Value →    $10M    $25M    $50M    $75M    $100M   $200M

Seed (1× non-part):
  Take pref?    $2M     $2M     $2M     convert convert convert
  Convert gets: —       —       —       $2M     $2M     $2M
  Seed receives: $2M    $2M     $2M     $2M     $2M     $2M
  Seed MOIC:    1.0x    1.0x    1.0x    1.0x    1.0x    1.0x

Series A (1× non-part):
  Take pref?    $6M     $6M     $6M     convert convert convert
  Convert gets: —       —       —       $6M     $6M     $6M (12%)
  A MOIC:       1.0x    1.0x    1.0x    1.0x    1.0x    1.0x ... (16% at $200M → $32M = 5.3x)

Series B (1× non-part):
  Pref avail:   $2M     $17M    $42M    $67M    convert convert
  Take pref?    $2M     $12M    $12M    $12M    convert convert
  Convert gets: —       —       —       —       $16M    $32M
  B MOIC:       0.17x   1.0x    1.0x    1.0x    1.33x   2.67x

Common (after preferences):
  Remaining:    $0      $7M     $36M    $67M    $82M    $166M
  Common FD%:   52%     52%     52%     52%     52%     52%
  Common value: $0      $3.6M   $18.7M  $34.8M  $42.6M  $86.3M

Per founder share:
  Founder A (24%): $0   $1.7M   $8.6M   $16.1M  $19.7M  $39.8M
  Founder B (20%): $0   $1.4M   $7.2M   $13.4M  $16.4M  $33.2M
```

### Step 4: Option Pool and Dilution Analysis
```
Effect of option pool expansion:

Scenario: current pool is 12%, expanding to 18% for Series C
  New options: 6% of post-Series-C FD = [calculated below]
  Pre-Series C FD: 12,500,000 shares
  Target post-Series C pool: 18%
  Shares for new pool: (18% - current 12%) / (1 - 18%) × current FD
    = 6% / 82% × 12.5M = 914,634 new option shares

  New FD before Series C: 12,500,000 + 914,634 = 13,414,634 shares

Impact on founders:
  Founder A: 3M / 13.4M = 22.4% (down from 24.0%) → −1.6%
  This dilution comes BEFORE the Series C investment
  If pool expansion pre-money: founders pay; if post-money: everyone shares

Anti-dilution in practice (down round example):
  Series A anti-dilution trigger: Series C priced below $4/share (Series A price)
  At $3/share Series C: BBWA adjustment
    NCP = $4 × (12.5M + $6M/$4) / (12.5M + $6M/$3)
        = $4 × (12.5M + 1.5M) / (12.5M + 2.0M) = $4 × 14/14.5 = $3.86
    Series A converts at $3.86 instead of $4 → more shares → dilutes founders more
```

### Step 5: Management Incentive Pool (MIP) — PE/LBO Context
```
Typical PE MIP structure:
  Total pool: 10-20% of equity (varies — 10% common for lower-mid market)
  Allocation by management tier:
    CEO: 30-40% of pool
    CFO: 15-20% of pool
    COO/Other C-suite: 10-15% each
    VP/Director level: 5-10% each

Strike prices (hurdle structures):
  Option 1: options struck at entry equity value (full profit participation)
  Option 2: ratchet/sweet equity (only kick in above [X]x MOIC threshold)
    Example: sweet equity kicks in above 2.0x MOIC → management only benefits on deal outperformance

MIP payout at exit:
  PE firm buys company for $100M (equity: $40M)
  MIP is 10% of equity above 2.0x MOIC hurdle
  At $150M exit equity: sponsor return = $150M − $80M (2x hurdle) = $70M above hurdle
  MIP = 10% × $70M = $7M to management
  Sponsor: $150M − $7M − $40M investment = $103M net return = 2.58x MOIC gross
```

## Output Format
1. Fully diluted cap table (all classes, shares, %, ownership by individual)
2. Liquidation preference stack with indifference points
3. Waterfall table (proceeds to each shareholder at 5-7 exit values)
4. Dilution scenario (option pool expansion or down round)
5. MIP / incentive pool economics (for PE transactions)
6. Per-share value by class at each exit scenario

## Caveats
- Cap table accuracy is critical — one error compounds through all calculations. Verify total shares = FD count.
- Option vesting schedules affect dilution calculations — unvested options may or may not be included in FD count depending on context (409A vs. M&A negotiation vs. GAAP)
- Tax consequences of liquidation (net exercise, 83(b), AMT) affect real economics — model pre-tax and post-tax
- SAFE notes and convertible notes add complexity — convert these first before building the cap table