Baatvik Chat has Rs 5 crore of cash left and two options: an acqui-hire at Rs 40 crore, of which Rs 15 crore is retention paid by the acquirer to the team, or a wind-down with Rs 8 crore of asset value after dues. Investors hold Rs 70 crore of 1x non-participating preferences. What does each class get under each option, and what carve-out question must the board answer?

Investors take all Rs 25 crore of deal consideration, Rs 21.4 crore to Series A and Rs 3.6 crore to Seed; founders and staff get nothing as shareholders and only the Rs 15 crore of retention as pay. In a wind-down investors recover Rs 8 crore and common again gets nothing. The board must decide whether to give common holders a carve-out from the Rs 25 crore, because the founders negotiating the split have a reason to push value into retention.

When a shop is sold, the price paid for the shop goes to its owners and lenders, but a salary the new owner promises the shop's staff to stay on goes to the staff. In an acqui-hire the Rs 25 crore paid for Baatvik's shares runs through the liquidation preferenceThe amount a preferred investor is paid back before common shareholders receive anything in a sale or wind-down. waterfall; the Rs 15 crore of retention is pay for future work and never touches it. That split is the whole case: the larger the retention, the less there is for shareholders.

Preferences total Rs 70 crore. In the acqui-hire Rs 25 crore reaches the waterfall. Converting would give investors 55% of Rs 25 crore, Rs 13.75 crore, so both series keep their preferences. The Rs 25 crore does not cover Rs 70 crore, so it is shared in proportion to preference: Series A gets Rs 21.43 crore, Seed Rs 3.57 crore, and the founders' and staff's shares get nothing. In the wind-down, Rs 8 crore is shared the same way: Series A Rs 6.86 crore and Seed Rs 1.14 crore. The team's only money in either case is the Rs 15 crore of retention in the acqui-hire.

Look at who negotiates the split. The founders deal with the acquirer, and every rupee they move from the Rs 25 crore of consideration into retention moves from the investors to the team. Investors still prefer the sale to a wind-down until retention reaches Rs 32 crore, because only then does their share fall to the Rs 8 crore a wind-down would give. That leaves a wide zone where the founders could push for more retention and the investors would still have to accept. A carve-outA slice of sale proceeds set aside for common holders or management ahead of the preferences, usually to keep the team supporting a sale. solves this by giving common holders a fixed slice of the consideration, so the founders have a stake in keeping the consideration high.

Take the acqui-hire: investors recover 36% of their money against 11% in a wind-down, and the team keeps jobs. The carve-out question is: how much of the Rs 25 crore should go to common holders so the founders support a fixed split rather than pushing more into retention? A 10% carve-out costs investors Rs 2.5 crore and still leaves them Rs 22.5 crore, nearly three times a wind-down. The board should also have someone other than the founders confirm the 25:15 split with the acquirer. The limit here is tax and law: retention is taxed as salary and consideration as capital, and how a carve-out is documented matters, so the company's lawyers should confirm the treatment.