All capital invested into the company needs to be documented. From the early, no terms loans from family and friends to the stack of convertible debt documents that may have accrued overtime with different CAP amounts. The buyer/investor will want to understand the “Preference Stack” or how each investor class will be treated at payout based on the documents and timing of prior rounds. This will also effect you as a common shareholder, because you will be paid last after the preferred shares.
Each round of funding has a unique set of documents and terms. You’ll place all executed copies of each investor documents in the data room. If your corporate hygiene is good here, awesome, this will be easy.
You’ll use either a CAP Table management software product or your lawyer to do the initial Exit Waterfall calculations. An Exit Waterfall allows you to calculate who will get paid what amount based on class of stock, timing of investment (Cap Amount) and stock class preferences.
You can do some of the initial (and unofficial) calculations yourself. But keep in mind that you’re going to have your law firm do the final calculations and opine on the payouts. It’s what you pay the law firm to do. Your initial communications with investors should be general communications on the terms, not specific to their investment, that comes after the law firm review.
Final Waterfall changes will vary right up to closing. Closing costs are paid first and that will cause the Waterfall to fluctuate until the end.