Ebb & Flow

It's only rational that investors in a private company want a stepup when the company goes public. Indeed, anti-dilution provisions typically are attached to the preferred shares that are issued in venture rounds. But most of the time, these provisions are addressed before a company files its S-1, as the company and investors agree on a fixed ratio at which preferred shares convert into common stock. This makes it easy to figure out both how a company will be valued at its IPO and how investors will be diluted, because the only unknown variable is the price.

Things are not so simple with Sunesis' IPO, because there are two unknowns: the price and the number of shares that will be outstanding, which will vary depending on the price. Currently, the company has 40 million shares outstanding, but it plans to undertake a reverse split before the IPO, although the split ratio won't be determined until the IPO price is set.

According to the S-1, if Sunesis goes out with a pre-money valuation of at least $237 million, its series B, C, C-1 and C2 shares will convert into common on a one-to-one basis. A pre-money valuation from $160-$237 million will yield "additional" common shares for each series C, C-1 and C-2 share held, while a valuation below $160 million will trigger the issuance of "additional" common shares to all the C and B holders.

"Additional" is not defined in the S-1. Right now, it's anybody's guess as to the valuation. Sunesis' filing says the company has "not yet completed the process of valuing" itself.

Investors in Sunesis' July 2000 C round included CSFB Private Equity; International Biotechnology Trust; Lombard Odier; Warburg Pincus; Mayfield Fund; Venrock; and Abingworth. B round investors were Warburg Pincus; International Biomedicine; New Medical Technologies; Mayfield; Venrock; Abingworth; and Skyline.

If the experience of

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