Venture Capital Cap Tables, Down-Round Restructuring & Pay-to-Play Clauses
VC Pay-to-Play Pro-Rata & Preferred-to-Common Formula
Calculate Venture Capital Pay-to-Play Down-Round Pro-Rata Check Requirement ($M), Preserved Preferred Shares vs Penalty Shares Forcibly Converted 1:1 into Common Stock, and Surviving Senior Liquidation Preference Stack ($M).
Model proportional Pay-to-Play conversion penalties accurately in down-round cap tables!
During a recapitalization or bridge down-round, boards invoke a Pay-to-Play charter amendment requiring existing preferred investors to fund their Pro-Rata Round Allocation = (Investor_Preferred_Shares / Total_Eligible_Base_Shares) * New_Round_Size! Under a proportional Pay-to-Play clause, an investor preserves Preferred status (retaining prior Liquidation Preference and anti-dilution protection) ONLY on the Participation Ratio = MIN(1, Actual_Check_Committed / ProRata_Required), while the unfunded fraction (1 - Participation_Ratio) * Investor_Preferred_Shares forcibly converts 1:1 into ordinary Common Stock—permanently stripping its senior liquidation preference!
Verify on a Series B Recapitalization—Investor_Prior_Preferred = 2.00M sh (B2), Eligible_Preferred_Base = 10.00M sh (20.0% pro-rata share, B3), Original_Issue_Price_Pref = $2.50/sh ($5.00M prior 1x preference, B4), New_PayToPlay_Round = $5.00M (B5 -> Investor 100% Pro-Rata Check Required = 0.20 * 5.00 = $1.00M in E2), and Investor_Actual_Check = $1.00M (B6): Preserved Prior Preferred equals all 2.0000M shares (E3), Forcibly Converted Common Penalty is 0.0000M shares (E4), and Surviving Total 1x Liquidation Preference (preserved $5.00M + new $1.00M check) reaches $6.00M (E5)! In shared cap-table workbooks in Arte Sheets, give external counsel `suggester` permissions so proposed Pay-to-Play ratios can be verified against both full and zero-check edge cases before acceptance.
| VC Pay-to-Play Metric (2M / 10M Base, $2.50 OIP, $5M Round, $1.0M Check) | Formula | Verified Output |
|---|---|---|
| 100% Pro-Rata Check Required ($M) | (Investor_Pref / Base_Sh) * Round_Size | $1.00M |
| Preserved Prior Preferred (M sh) | Investor_Pref * MIN(1, Check / ProRata_Req) | 2.0000M (0.5000M @ $0.25M; 0 @ $0) |
| Forcibly Converted to Common (M) | Investor_Pref - Preserved_Preferred | 0.0000M (1.5000M @ $0.25M; 2M @ $0) |
| Total Surviving 1x Liq Pref ($M) | Preserved_Pref * Prior_OIP + Actual_Check | $6.00M ($1.50M @ $0.25M; $0 @ $0) |
Proportional Pay-to-Play Surviving Liquidation Preference Formula
Validate 0 < Investor_Pref <= Base_Shares, Prior_OIP > 0, New_Round > 0, and Actual_Check >= 0!
=LET(ip_s, B2, bs_s, B3, oi_p, B4, rn_m, B5, ck_m, B6, IF(OR(ip_s <= 0, bs_s < ip_s, oi_p <= 0, rn_m <= 0, ck_m < 0), "Invalid Pay-to-Play Cap Table", LET(pr_q, (ip_s / bs_s) * rn_m, pt_r, MIN(1, ck_m / pr_q), sv_p, ip_s * pt_r, ROUND(sv_p * oi_p + ck_m, 2))))25% Partial Check & Non-Participating Wipeout Checks
Test partial participation (B6 = $0.25M = 25% of pro-rata): only 0.50M shares keep Preferred status (E3), 1.50M shares convert to Common (E4), and Surviving Preference E5 drops from $6.00M to 0.50*2.50 + 0.25 = $1.50M! At B6 = $0 (non-participation), E5 drops to $0.00M!
=IF(ISTEXT(E5), E5, ROUND(B2 - B2 * MIN(1, B6 / ((B2 / B3) * B5)), 4))Try the example
Use the original values or change them to test your understanding.