Both Sides of the Table

MAY 13, 2013

If the money comes from professional investors it usually has a “liquidation preference” meaning that their money comes out before the founders or common stock. (If That’s why liquidation preferences exist – downside protection. I know many rank-and-file employees. Does Yahoo!

Liquidation Preference 357

Liquidation Preference Early Stage Retention Lock-up Period 357

Altgate

DECEMBER 18, 2008

@altgate Startups, Venture Capital & Everything In Between Skip to content Home Furqan Nazeeri (fn@altgate.com) ← Holiday Cards Year End Management Changes → The 3X Liquidation Preference Is Back! Let’s recap how expensive a 3x liquidation preference really is. What’s the alternative?

Liquidation Preference 31

Liquidation Preference Venture Capital Post-Money Valuation Participating Preferred 31

Gust

SEPTEMBER 17, 2014

Me: Raising convertible notes as a seed round is one of the biggest disservices our industry has done to entrepreneurs since 2001-2003 when there were “full ratchets” and “multiple liquidation preferences” – the most hostile terms anybody found in term sheets 10 years ago. Him: Not so good. Obviously he’d be pissed off. Me: I know.

Liquidation Preference 153

Liquidation Preference Valuation Term Sheet Stock 153

Both Sides of the Table

JANUARY 21, 2010

Forget to get around to setting up that Employee Stock Option Plan and want to be able to give the early guys their options at a low strike price? For company registration, angel deals, Series A & B funding, Employee Stock Option Plans (ESOP), IP filings and even litigation it doesn’t need to be that way.

Southern California 318

Southern California Silicon Valley IP Stock Options 318

Gust

NOVEMBER 15, 2012

In my own portfolio I have companies that are generally perceived to be extremely successful with high profile customers and lots of sales…but they just happen to have a liquidation preference ladder of $25 million!

Seed Stage 131

Seed Stage Hockey Stick Cap Table Liquidation Preference 131

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

Feld Thoughts

SEPTEMBER 9, 2015

Some will demonstrate strategically justifiable metrics and have fantastic ‘up round’ exits; others may see liquidation preferences kick in which will negatively impact founders and employees; others may fulfill the adage “IPO is the new down round” , which has been the case for more than half of the public companies on our list.

Liquidation Preference 70

Liquidation Preference Burn Rate Balance Sheet .Net 70

Up and Running

MAY 21, 2015

They generally also get additional rights that common shareholders don’t get, such as anti-dilution protection, and liquidation preference (discussed further below). Liquidation preference. Whether that’s true or not depends in no small part on how the liquidation preference clause was negotiated with outside investors.

Covenant 60

Covenant Liquidation Preference Ratchet Dilution 60

ithacaVC

JUNE 29, 2018

Our portfolio companies routinely adopt carve out plans when the founders/employees equity values are not likely to provide enough incentive to get a company to an exit. This typically results when the company has raised a lot of money and the preferred stock liquidation preference would absorb an out sized portion of the exit proceeds.

Management 40

Management Liquidation Preference Preferred Stock Dilution 40

Both Sides of the Table

SEPTEMBER 6, 2010

We set our sites on our IPO price and then worked back to our current valuation and showed potential employees what we thought they could earn (with all legal caveats) if the company was successful. Options are obviously a very important economic motivator for your first 3-5 employees and your most senior management team.

Stock Options 294

Stock Options Stock Valuation Liquidation Preference 294

Both Sides of the Table

SEPTEMBER 28, 2013

The don’t understand VC liquidation preferences or multiple return expectations. An employee walks up to me and says, “Mark, I’m thinking about buying a house. Most employees want cruising altitude, most founders live in take off mode. You take the meeting but you’re not really pursuing it.

Startup 417

Startup Dilution San Diego Stock Options 417

The Equity Kicker

AUGUST 1, 2012

This analysis assumes there was no participating liquidation preference and lumps together companies that have raised money with those that haven’t, but I think it is fair to guess that in aggregate the investors in these companies didn’t get what they set out for. Data from LinkedIn suggests all four companies had 3-5 employees.

San Francisco 110

San Francisco Hiring Liquidation Preference Aggregator 110

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

techcrunch.com

FEBRUARY 25, 2010

As Mark Suster recently noted , employees will never see a big payday at most startups unless the company shoots for the moon. The remaining 95 employees split 7%, each earning $27,000. Unlike the founders, the employees have to wait until their grants vest, working at a company no longer of their choosing for two years.

Liquidation Preference 63

Liquidation Preference Founder Option Pool Acquisition 63

ithacaVC

SEPTEMBER 20, 2011

In “VC world” Rule 409A is best known for providing a safe harbor for private company valuations, and in particular the setting of strike prices for employee stock options. If the company conducts an outside independent valuation, then, under 409A, the burden is on the IRS to prove that the valuation was not reasonable (i.e.,

Liquidation Preference 49

Liquidation Preference Common Stock Stock Options Valuation 49

Feld Thoughts

FEBRUARY 28, 2023

Conversion right: In Germany, there is generally no conversion right entitling the holder of preferred shares to convert them into common shares at any time. This may not seem like a big deal at first glance, but it has extensive implications under various aspects, such as the structure of the liquidation preference.

Germany 165

Germany Liquidation Preference Option Pool Advisory Board 165

Both Sides of the Table

NOVEMBER 4, 2009

BTW, this ignores liquidation preferences which actually mean you’ll earn less. He’d be employee number 3. In California that averages around 42.5% so in my state after tax you’d make an extra $18,000 / year and that’s in a positive scenario! So let’s go CRAZY! you won the lottery).

Stock Options 418

Stock Options Stock Liquidation Preference Option Pool 418

ithacaVC

FEBRUARY 23, 2011

As the investors’ aggregate liquidation preference (ALP) increases typically the need for a MCOP also increases. The ALP is the total amount of $ that preferred stock holders are owed on a sale of the company under their liquidation preferences. A few key points to consider: 1.

Liquidation Preference 55

Liquidation Preference Management Preferred Stock Dividend 55

genylabs.typepad.com

SEPTEMBER 24, 2011

where your stock sits in the liquidity preference stack. what rights and preferences the founders and the other investors have. My post looks at this from the consultant/employee point of view. what kind of stock you are getting. what your rights are. there is a real good chance your stock is not going to be worth much.

Equity 40

Equity Technical Review San Jose Stock 40

ithacaVC

MAY 1, 2013

It must be paid out before the common shares, which are typically held by the founders and other employees.” The article also states that “But venture capital investments are structured to ensure that the venture capitalists are paid before founders and employees.” The dividend goes unpaid until the company is sold.

Dividend 45

Dividend Liquidation Preference Common Stock Venture Capital 45

ithacaVC

DECEMBER 13, 2013

They are typically pretty simple: (i) shares owned by founders and (ii) shares authorized for issuance in a stock option pool, some of which may be issued to employees already and some of which will be available for future issuance. So let’s talk about the components of the 2,456,758 share number.

Cap Table 67

Cap Table Pre-Money Valuation Option Pool Liquidation Preference 67

Scott Edward Walker

DECEMBER 13, 2018

Sometimes, however, an acquirer will try to convince the founders to skip the purchase agreement and only execute a release agreement, permitting the acquirer to hire all of the startup’s founders and key employees and releasing the acquirer from any liability in connection therewith.

Founder 45

Founder Merger IP Liquidation Preference 45

dondodge.typepad.com

JANUARY 15, 2011

Community is more powerful than money or technology » August 11, 2007 How much equity for investors and employees? How much equity should I grant to early employees? Founders usually end up with 10% to 20%, all the other employees end up with about 15%, and the VCs end up with about 60% to 75%. 5% Managers -.25%

Equity 40

Equity Employee Dilution Valuation 40

K9 Ventures

NOVEMBER 21, 2011

If they have, then there is no reason the founders shouldn’t get some liquidity of their own. 2) Fairness to other early employees in the company : This is a very critical and important point, that is often overlooked by founders. I believe this is something that needs to be determined on a company-by-company basis.

Founder 87

Founder Common Stock Preferred Stock Stock 87

K9 Ventures

NOVEMBER 21, 2011

If they have, then there is no reason the founders shouldn’t get some liquidity of their own. 2) Fairness to other early employees in the company : This is a very critical and important point, that is often overlooked by founders. I believe this is something that needs to be determined on a company-by-company basis.

Founder 84

Founder Common Stock Preferred Stock Stock 84

Both Sides of the Table

SEPTEMBER 2, 2009

I took money with a 3x participating preferred liquidation preference with 8% compounded interest annually. Coupled with my participating preferred from 1999 and 2000 I had more than $55 million of liquidation preferences. In my first company I had to raise money in April 2001 or die. Two answers from me.

Founder 329

Founder Liquidation Preference Term Sheet Participating Preferred 329

Venture Chronicles

AUGUST 23, 2013

What is really lacking in tech startups today is a strong voice for common shareholders, the employees, in private companies. The executive members of the board are supposed to fulfill this but all too often their voice is not equal to that of the other board members when it comes to shareholder classes.

Management 66

Management Startup Liquidation Preference Dilution 66

Both Sides of the Table

JULY 19, 2011

For one, due to the way liquidation preference work sometimes they have “flat spots&# which means that they might earn the exact same amount from a $40 million sale as they would from a $50 million sale. But you want to be the person negotiating your deal. What might the VC do against your interest? Why do I care?

Term Sheet 319

Term Sheet PR Liquidation Preference Stock Options 319

crowdSPRING Blog

MARCH 13, 2014

Does A Billion-Dollar Valuation Buy Employee Happiness? Good read for entrepreneurs & startup employees on liquidation preferences – crowdspring.co/1neVvzy. Guerilla tips for raising venture capital | VentureBeat – crowdspring.co/P6hM3O. ReadWrite – crowdspring.co/1ekm5xR. 1loBthB.

Social Media 96

Social Media Small Business Design Media 96

www.mattbartus.com

DECEMBER 9, 2012

I've just seen many startups unhealthily focus on the valuation versus things such as the liquidation preference or board control. I've just seen many startups unhealthily focus on the valuation versus things such as the liquidation preference or board control. Employees, Advisors & Consultants (12).

Warrant 40

Warrant Valuation Pre-Money Valuation Term Sheet 40

crowdSPRING Blog

MARCH 21, 2014

Sick Leave for Your Employees: Why it Matters – crowdspring.co/1gFez17. Sick Leave for Your Employees: Why it Matters – crowdspring.co/1gFez17. Good read for entrepreneurs & startup employees on liquidation preferences – crowdspring.co/1neVvzy. Most are spot on. ” – crowdspring.co/1lPU1Ks.

Social Media 93

Social Media Small Business Design Media 93

SoCal CTO

JULY 13, 2010

liquidation preference. Your employees can’t also be your friends. Yes, even bootstrappers. haven't raised any money for my companies that required a term sheet (just friends & family money in my first company), and yet I still think it is important for a number of reasons. This pitcher has retired 5 of the last 7 batters.

Cofounder 175

Cofounder Technical Cofounder Term Sheet Startup 175

Professor VC

JULY 25, 2013

In investment parlance, it strictly means that new classes of stock have equal rights with prior classes in terms of liquidation preference, voting rights, etc. It is a Latin phrase that means "on equal footing" and has been translated to mean "ranking equally", "hand in hand", and "fairly" according to Wikipedia.

Term Sheet 46

Term Sheet Silicon Valley Syndicate Syndication 46

abovethecrowd.com

FEBRUARY 24, 2015

In a February 6th article in Business Insider , Allyson Shontell discovered that a mere four months after adding $150 million to a total of $330 million in invested capital, the founder and CEO disclosed to its employees that “we have spent $200 million and we have not proven out our business model.”

IPO 40

IPO Liquidation Preference Valuation Technical Review 40

Gust

MAY 24, 2012

As a quick review, most startups begin life as corporations with a single class of equity securities, referred to as Common Stock , issued to founders, employees, and outside service providers. Options and warrants, when issued, are also typically exercisable for shares of Common Stock.

IPO 159

IPO Equity Common Stock Stock 159

Board Effect

MAY 10, 2019

Such metrics can include an investor’s liquidation preference, option exercise windows and expiry dates, and shareholders’ fully diluted ownership percentages. There’s the owner—maybe a partner or two—but unless employees are offered equity from the get-go, there’s typically not a whole lot of dilution. Liquidation Preferences.

Cap Table 40

Cap Table Liquidation Preference Dilution Liquidity Event 40

Austin Startup

AUGUST 1, 2017

First, investors will sometimes be willing to take a higher valuation if it means getting a heavier liquidation preference. Should you accept a 3x liquidation preference with a $15MM valuation instead of a 1x preference at a $8MM valuation? If you’re confident you’ll get a huge exit, maybe.

Liquidation Preference 48

Liquidation Preference Common Stock Valuation Silicon Valley 48