Berkonomics

JULY 23, 2020

Does the board declare dividends upon the preferred stock invested in order to increase the amount paid out to the preferred – at the expense of the common – shareholders, which usually includes the founder(s)? This raises the bar for venture capitalists in a marginal sale of a business.

Delaware 62

Delaware Liquidation Preference Preferred Stock Early Stage 62

www.founderinstitute.com

MARCH 2, 2010

Participation" means that investors "double dip" by getting both their liquidation preference and their equity allocation. - A 1x liquidation preference , versus a 1x to 3x range in recent deals reported on TheFunded.com.

Term Sheet 40

Term Sheet Liquidation Preference Vesting San Diego 40

Feld Thoughts

MAY 7, 2012

And even though a term sheet might be four to eight pages long and the definitive documents might be 100 pages or more, other than economics, there are really only three things a VC needs in a deal. Down: Liquidation preference. Up: Pro-rata rights.

Liquidation Preference 143

Liquidation Preference Term Sheet Search Entrepreneur 143

Feld Thoughts

JUNE 2, 2015

Or, if you just want the paragraph, it’s: “If this note converts at a price higher than the cap that you have been given you agree that in the conversion of the note into equity you agree to allow your stock to be converted such that you will receive no more than a 1x non-participating liquidation preference plus any agreed interest.”.

Liquidation Preference 70

Liquidation Preference Cap Table Angel Investor Post-Money Valuation 70

Both Sides of the Table

JANUARY 21, 2010

Additional value outside of legal documents – Most lawyers who work with early stage startups secretly want to be entrepreneurs but they earn too much money to quit – the golden handcuffs I’ve found that the best of them think like entrepreneurs, though, and hang out at startup events.

Southern California 318

Southern California Silicon Valley IP Stock Options 318

Tim Keane

JANUARY 12, 2010

.   At the financial level , and assuming a harvest of the investment in the company without the need for further financing, two terms stand out as driving economics: the dividend and the liquidation preference. Second a liquidation preference and a participation.   First , dividends.

Term Sheet 68

Term Sheet Valuation Dividend Liquidation Preference 68

The Startup Lawyer

JULY 13, 2011

While using these document sets can help reduce transaction costs and the time to close, a startup can run into trouble by trusting deal documents without verification. For example, a startup requested I review a set of financing documents produced by investor counsel. They might not be the standard set at all.

Preferred Stock 68

Preferred Stock Liquidation Preference Participating Preferred Stock 68

Up and Running

MAY 21, 2015

That’s because preferred shares operate under a completely separate set of rules (which will be defined in the investment documents) than your shares. They generally also get additional rights that common shareholders don’t get, such as anti-dilution protection, and liquidation preference (discussed further below).

Covenant 60

Covenant Liquidation Preference Ratchet Dilution 60

Berkonomics

AUGUST 29, 2013

Does the board declare dividends upon the preferred stock invested in order to increase the amount paid out to the preferred – at the expense of the common – shareholders, which usually includes the founder(s)? This raises the bar for venture capitalists in a marginal sale of a business.

Delaware 66

Delaware Liquidation Preference Liquidity Event Preferred Stock 66

Scott Edward Walker

APRIL 9, 2012

They are also typically granted certain additional economic rights (like Series A investors), such as pro-rata rights and a liquidation preference. In fact, in the Fenwick Survey , 9% of the preferred stock seed financings included a participating preferred liquidation preference (which is not founder friendly).

Preferred Stock 87

Preferred Stock Finance Common Stock Liquidation Preference 87

Startup Company Lawyer

JANUARY 9, 2011

However, Ted Wang points out that Series Seed documents are better than capped convertible notes. (I’ve Fred Wilson, while he doesn’t endorse the Series Seed documents, says that Union Square Ventures has never participated in a convertible note deal.

Liquidation Preference 57

Liquidation Preference Finance Preferred Stock Common Stock 57

Both Sides of the Table

JULY 19, 2011

You thought it was going to be as easy as just having term sheet transferred to a longer form document. But every freakin’ week there are delays in getting the lawyers to “turn around&# the documents. But as it goes to the legal docs naturally 20 issues arise the require negotiations. You want the deal to close in 4 weeks.

Term Sheet 319

Term Sheet PR Liquidation Preference Stock Options 319

Startup Company Lawyer

JANUARY 31, 2011

Reactions are mixed, from “ no big deal ,&# to “ disrupting angel investing &# to “ you’d be crazy not to take this deal &# to “ facilitating a bubble &# to “ strategic perfection.&# TechCrunch reports that within 24 hours, 36 of the 43 companies had already signed the convertible debt documents.

Preferred Stock 60

Preferred Stock Liquidation Preference IPO Common Stock 60

Scott Edward Walker

DECEMBER 13, 2018

What Legal Documents are Utilized? Acquihires will typically entail the same process and the same documentation as any other acquisition: a letter of intent, a confidentiality agreement, a purchase agreement, etc.

Founder 45

Founder Merger IP Liquidation Preference 45

K9 Ventures

MARCH 23, 2011

It is in essence equivalent to being a Liquidation Preference that is typically seen in a preferred equity financing. ” However, even that argument is becoming a much weaker one in the face of open-sourced financing documents like the Series Seed documents. There are multiple issues at hand here.

Pre-Money Valuation 132

Pre-Money Valuation Valuation Equity Liquidation Preference 132

Scott Edward Walker

AUGUST 31, 2011

As the late, great attorney Craig Johnson wrote in the book The Silicon Valley Edge: A Habitat for Innovation and Entrepreneurship : Although start-up lawyers in Silicon Valley draft documents and follow form books. they usually play a much larger role in the businesses being started.

Silicon Valley 45

Silicon Valley Term Sheet Liquidation Preference Redemption 45

Scott Edward Walker

JULY 27, 2011

There is, however, another set of rights with which many entrepreneurs may not be familiar: State law rights. These are rights granted to stockholders pursuant to the respective laws of the company’s State of incorporation and are often the only rights that minority common stockholders have.

Delaware 49

Delaware Liquidation Preference Redemption Los Angeles 49

ithacaVC

MAY 4, 2011

Let’s say that the Series A liquidation preference (LP) is 1X and that the Series B LP is 1.5X. As the document drafts are going back and forth, the Series C new investor says “I did not realize the Series B has a 1.5X Here is an example. LP; we need that too.”

Term Sheet 49

Term Sheet LP Ratchet Liquidation Preference 49

Hunter Walker

NOVEMBER 23, 2015

SS: It actually started out as a personal accountability exercise – I think it’s very easy to fool yourself as a senior leader about your effectiveness, so I was trying (in Google snippet style) to just document my goals and accomplishments each week, in a transparent and accountable way.

Engineer 48

Engineer Liquidation Preference AJAX IPO 48

Startup Company Lawyer

FEBRUARY 21, 2010

Due to aggregate liquidation preferences that may exceed the acquisition price in an M&A deal, common stock may be rendered worthless. If you can’t figure this out yourself, you should probably build a liquidation preference spreadsheet to model how liquidation preferences work depending on M&A transaction value.

Retention 31

Retention Liquidation Preference Employee Common Stock 31

Up and Running

MARCH 29, 2017

Other important terms include liquidation preference (who gets paid out first), participation rights (if the investors get to “double dip” on returns even after they get their full investment back), dividends, governance (board seats), and other investor rights. Those two terms determine how much of the company you’re giving away.

Term Sheet 60

Term Sheet Venture Capital Liquidation Preference Valuation 60

abovethecrowd.com

APRIL 20, 2016

“Dirty” or structured term sheets are proposed investments where the majority of the economic gains for the investor come not from the headline valuation, but rather through a series of dirty terms that are hidden deeper in the document. For the most part, early investors in Unicorns are in the same position as founders and employees.

IPO 40

IPO Term Sheet Silicon Valley Valuation 40

thestartuplawyer.com

FEBRUARY 24, 2010

After you have discussed everything that needs to be discussed, DOCUMENT-DOCUMENT-DOCUMENT. Make sure your startup company documents reflect all of your discussions. Establishing and documenting the co-founder relationship is one of the most important aspects of a having a successful startup company.

Cofounder 40

Cofounder Founder Preferred Stock Startup 40

www.paulgraham.com

APRIL 28, 2010

When youhear people talking about a successful angel investor, theyre notsaying "He got a 4x liquidation preference." You can just use the standard series AA documents Wilson Sonsini and Y Combinator published online.You should of course have your lawyer review everything. Thats not how you win at this game.

Angel Investor 63

Angel Investor Syndicate Syndication Dilution 63