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How Pulley's Waterfall Model Works
How Pulley's Waterfall Model Works

Pulley's waterfall model allows users to simulate payouts for each stakeholder on their cap table in the event of an acquisition or IPO.

Florence Fermanis avatar
Written by Florence Fermanis
Updated over a week ago

Pulley's waterfall model allows users to simulate payouts for each stakeholder on their cap table in the event of an acquisition or IPO.

Note: Not all acquisitions and IPOs are structured in the same way. While the waterfall model can generate estimated payouts, these numbers are hypothetical. The actual amounts owed to stakeholders in an acquisition or IPO may differ.

Note: Pulley can now support LLCs and outstanding profit interests.

Model Inputs

  • Exit value range: The range of hypothetical acquisition prices or IPO market caps to calculate payouts for.

  • Columns: The number of price increments the model will display between the inputted min and max exit values. These will represent possible payout scenarios.

  • Anticipated exit date: The hypothetical date of the acquisition or IPO. The model will use this date to determine vesting amounts.

  • Estimated transaction costs: Optional fields for any anticipated transaction costs. These costs will be subtracted from the headline exit values to reach net proceeds which, in turn, will be distributed to the stakeholders on the cap table.

Order of Operations

  • Fixed costs: Any estimated transaction costs are deducted from gross proceeds to reach net proceeds.

  • Liquidation preferences and option/warrant exercise: The model determines whether each preferred share class would make more money taking the applicable liquidation preference or converting to common shares. The model also determines whether option and warrant holders would make a profit from exercising their vested options or warrants. Any proceeds from the exercise of options or warrants are added to gross proceeds.

  • Payouts: The model calculates the per share payout amount, which is then used to calculate the payout for every individual stakeholder on the cap table. The model multiplies the per share value by the applicable number of shares owned by each stakeholder. For options and warrants, the payout is net of exercise.

Currently Unsupported Use Cases

Pulley is continually improving this feature, so the number of unsupported use cases will decrease over time.

  • Warrants and options exercisable into preferred shares: The model assumes that all options and warrants are exercisable into common shares.

  • Phantom shares: The model ignores any outstanding phantom shares.

  • Double trigger acceleration of options: The model considers all options marked as having acceleration to fully vest.

  • Double trigger acceleration of RSUs: The model considers all time-vested RSUs as fully-vested.

  • Repurchase of RSAs: The model assumes that all unvested RSAs will be repurchased and that stakeholders will not receive proceeds on their unvested RSAs.

  • Management carve-outs: The model doesn’t contemplate management carve-out plans or other post-exit terms.

  • Participating preferred & participating preferred caps: The model doesn’t work for participating preferred shares (all preferred shares are assumed to be non-participating).

  • Non-U.S. currencies: The model doesn’t handle currency conversions.

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