Value allocation in a water fall structure

The main issue is that companies calculate per share values without taking into account the waterfall structure i.e. your post-money valuation has to be allocated according to the waterfall model to arrive at a per share value for the new preferred round. You need to first arrive at a company valuation and then allocate that to different shareholder classes per the allocation rights. Right now the pre-money valuation is arrived at by assuming a per share value for the new round and multiplying that per share value for all existing shares, which is doing things in a reverse way, and is not correct as shareholder classes are not equal and each class will have a different per share value. Also, companies should always be valued at the enterprise level and then the value of each class arrived at. This method of arbitrarily assigning a per share value to the new preferred round and then arriving at the pre-money based on that is not quite correct. This is why there is a divergence between your calculated per share value and ours, which takes the waterfall structure into consideration, and correctly allocates the value. There is a difference between allocating value and just dividing up the value between all classes assuming a fully converted, pro rata basis.

Apple's iPhone business

In an investor call with W.R. Hambrecht (WRH), we learnt the following about Apple's business. WRH expects that Apple will sell about 3 to 4.5 million iPhones per quarter. People who need to create business models to get financing for their iPhone APP development can probably use that input. WRH, however, says that they haven't heard from inner circles or anybody else that iPhone apps would turn out to be a major driver of iPhone sales. The analyst firm pointed out that Apple was trading at a 13-year low P/E and it is probably a good time to buy. We tend to agree with that. Further, the Android phone from Google is not expected to compete with the iPhone even though AT&T may offer the Android phone as well. We have to point out that Apple's iPhone revenues are only about 5% of its overall revenues. Apple continues to be a Mac company with 35% to 40% revenues coming from Mac and relates software sales.