Do Not Ignore Post-Closing CSE Changes

Law360, New York (June 16, 2016, 5:45 PM EDT) -- Funds investing in portfolio companies need to understand how a company-level pre-money valuation may become distorted (to the detriment of new investors) when that valuation is analyzed through the prism of the pre-money capitalization table and the related post-money capitalization table (referred to as the "cap chart(s)"). The ramifications may significantly alter the price per share in the new investment round.

In the simplest new-round investment, this should not be an issue. All pre-closing common stock equivalents (CSE) in the company remain unchanged as a result of the issuance of shares (or other equity interests) in the new round, and the...

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