How does Preferred Return estimate the Fair Market Value of a company today using the Valuation Cap of a Convertible Note or SAFE?

We use a combination of a Lattice model and a probability-weighted expected return model while considering

  1. The payout function and terms of the Convertible Note or SAFE,
  2. The maturity of the Convertible Note or the expected conversion date of the SAFE,
  3. The volatility of the company, as derived from the basket of comparable companies, and
  4. Review of the probability distribution of various conversion scenarios and payout function to the Convertible Note or SAFE investors.

In short, we look at the fundamentals of the company, while using derivative modeling techniques, and adhering to the AICPA and IRS guidance.

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