Secure Workflows: Protecting Data in Global Outsourced Operations
18 DECEMBER 2025
Case Overview
The client operates in the healthcare space and recently undertook a significant equity financing transaction, introducing additional complexity to its capital structure. As part of this round, investors received preferred equity units along with two distinct classes of common warrants bundled into the investment.
In addition to the newly issued securities, the company’s capitalization table included several other classes of equity instruments, such as:
- Series A preferred units
- Common units
- Incentive (employee) units
The presence of multiple security types – each with distinct rights, preferences, and valuation sensitivities, required a nuanced and accurate valuation methodology to support compliance, transparency, and fair financial reporting.
Valuation Complexity
One of the primary challenges in this engagement was performing a backsolve valuation for the most recent transaction involving a bundled issuance of Series B preferred units and two classes of common warrants. Traditional backsolve methods often focus on a single class of securities. However, in this case, the presence of a bundle of instruments required a more nuanced and integrative valuation approach.
Key complexities included:
- The need to determine the fair market value (FMV) of the entire bundle of Series B securities granted to investors.
- The requirement to model a multi-tier capital structure with different liquidation preferences and participation rights.
- The necessity of ensuring the FMV of the newly issued bundle equaled the total investment amount contributed by Series B investors.
This multi-layered valuation could not be accurately performed without a dynamic and detailed understanding of the interplay between different classes of equity and their implications on waterfall distributions.
Windy Street’s Solution
To address these complexities, Windy Street (WS) adopted a rigorous and methodical approach grounded in best practices for equity valuation, particularly for startups and private companies with layered capital structures.
1. Development of a Detailed Waterfall Model
The WS valuation team began by constructing a comprehensive waterfall model to represent the hierarchy of claims and economic rights across all equity classes in the company’s capital structure. This model accounted for:
- Liquidation preferences for preferred units
- Conversion rights
- Participation features (if any)
- Exercise terms of the issued warrants
- Distribution order of proceeds in both exit and ongoing valuation scenarios
Creating this waterfall was essential to simulate how value would be allocated to each class of security under different equity valuation assumptions.
2. Application of the Option Pricing Model (OPM) and Backsolve Method
Using the waterfall framework, the team performed an Option Pricing Model (OPM) Backsolve, which is a commonly accepted method for determining the implied equity value of a company based on recent third-party transactions. However, instead of applying the backsolve method to a single security class, WS innovatively applied it to the entire bundle of Series B securities – comprising the preferred units and two classes of common warrants.
The key principle was to equate the FMV of the bundled securities to the total Series B investment, effectively solving for the overall equity value that rationalized the investor’s total contribution.
Once this implied equity value was derived, the WS team was able to:
- Allocate value to each class of security across the cap table
- Determine the FMV of common units and other instruments
- Support the client in meeting compliance requirements for financial reporting, tax (e.g., 409A valuation), and audit
Impact and Outcome
Windy Street’s advanced modeling provided the company with a robust and audit-ready valuation that could withstand scrutiny from investors, auditors, and regulators. The engagement ensured that:
- The value of the bundled securities matched the actual transaction value
- The common equity FMV was derived in a manner consistent with best practices and industry standards
- The client’s cap table remained accurate and defensible, helping them avoid potential issues in future funding rounds, employee equity grants, or M&A activities
This case highlights Windy Street’s expertise in handling complex equity structures and delivering solutions that align with the needs of high-growth, venture-backed companies.
