TA Associates Mock Case Study – Growth equity round

At a glance

Model a Series D investment in a refurbished-electronics marketplace, including primary and secondary shares and a liquidation preference. You have one hour and a partly completed template. Calculate ownership after dilution and returns, allowing for the existing PIK shareholder loan.

The brief

Ormsby has told the fund that its Series D round will consist of £60m of primary equity (new shares) at a pre-money equity value of £540m, all of which the fund would take. Separately, one of the founders is willing to sell £35m of his existing shares to the fund at an equity value of £400m. The fund pays the deal fees of £2.5m. For simplicity, treat everything the fund buys as ordinary equity.

The fund would exit by selling the business to a private equity buyer. It may also ask for a 2.0x liquidation preference on its primary shares, and wants to know what that protection is worth.

Your objective is to assess the fund's returns at the valuations the company has proposed. You receive a one-sheet Excel template with the historical and forecast operating data already in place, an outline income statement, cash flow statement, abridged balance sheet, financing and tax calculations, and a sources and uses table. Light-blue cells mark the areas you may complete. The returns analysis is built in the two empty sections at the bottom of the sheet.

Two reminders from the interviewer:

• Primary versus secondary equity. Primary equity means the company issues new shares, so the cash goes to the company and its equity value rises. A secondary purchase buys existing shares from current holders: the cash goes to the seller and the company's equity value does not change.
• Liquidation preference. Common in growth rounds, a preference gives the investor priority over ordinary shareholders for an agreed amount at exit, subject to sufficient proceeds. It ranks behind all debt and debt-like instruments (here, the shareholder loan) but ahead of ordinary equity.