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

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. People seem concerned about valuation. Revenue multiple?

Liquidation Preference 153

Liquidation Preference Valuation Term Sheet Stock 153

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

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

Austin Startup

AUGUST 1, 2017

This is most clearly highlighted in the “unicorn” boom we all saw over the past few years, where founders raised very large rounds, with terms very onerous to the underlying common stock, hoping they could eventually justify billion dollar valuations to skeptical acquirers or public market investors. Angels/Seed Funds v.

Liquidation Preference 48

Liquidation Preference Common Stock Valuation Silicon Valley 48

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. Dilution / valuation. Runway of cash. ” Yes.

Startup 417

Startup Dilution San Diego Stock Options 417

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. “We

Liquidation Preference 70

Liquidation Preference Burn Rate Balance Sheet .Net 70

www.mattbartus.com

DECEMBER 9, 2012

How to pump up your VC valuation. Let’s say you receive a term sheet for a $1 million investment at a $3 million fully diluted pre-money valuation, and you’re kind of disappointed. One possibility is to negotiate a higher valuation and offer warrants (i.e., Home About Matt Client references Contact. 10,000,000.

Warrant 40

Warrant Valuation Pre-Money Valuation Term Sheet 40

Up and Running

MAY 21, 2015

All the other sharks typically make a traditional equity investment; for example they’ll invest $100,000 at a $1,000,000 business valuation, and take 10 percent of the business. 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

Austin Startup

APRIL 1, 2017

They’ll focus on high-level issues like valuation, liquidation preference, and board composition (# of seats), and then prematurely check out once a term sheet is signed. The wrong way to define “independent” is simply as “not an investor or employee.” And, broadly speaking, that is correct.

Term Sheet 48

Term Sheet Institutional Investors Technical Review Lead Investor 48

The Equity Kicker

DECEMBER 30, 2013

The corollary of this is that when valuations get too high, or the amount of cash raised gets too high then the asymmetry between the upside and the downside disappears. Most venture capitalists employ this strategy.”. The optionality is therefore lost and the investment becomes less attractive. Griffin puts it this way: 7.

Finance 129

Finance Liquidation Preference Valuation Harvest 129

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

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

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. A whole cottage industry popped up, and the cost of a valuation is typically $4-8K. Here is one reason why 409A valuations drive people nuts.

Liquidation Preference 49

Liquidation Preference Common Stock Stock Options Valuation 49

Both Sides of the Table

NOVEMBER 4, 2009

Let’s assume that the company raised it at a normal VC valuation, which means it gave up 33% of the company and thus $5 million / 33% = $15 million post-money valuation. BTW, this ignores liquidation preferences which actually mean you’ll earn less. He’d be employee number 3.

Stock Options 418

Stock Options Stock Liquidation Preference Option Pool 418

ithacaVC

DECEMBER 13, 2013

The share price is calculated by taking the pre-money valuation and dividing it by the number of shares outstanding pre-money. So Share Price (SP) = Pre-Money Valuation (PMV) / Shares Outstanding (SO). That is normal for a pre-money % as it will drop down to about 10% post money depending on size of round and valuation.

Cap Table 67

Cap Table Pre-Money Valuation Option Pool Liquidation Preference 67

genylabs.typepad.com

SEPTEMBER 24, 2011

I wont bother going into details on start-up financing terms ( see this post for an overview of typical VC terms) except to say if you dont know and understand: the firms cap table and valuation. where your stock sits in the liquidity preference stack. what rights and preferences the founders and the other investors have.

Equity 40

Equity Technical Review San Jose Stock 40

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

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? The entrepreneur expects the company to be worth many times this valuation and so does the investor. Should I take Angel or VC money?

Equity 40

Equity Employee Dilution Valuation 40

Up and Running

MARCH 29, 2017

I hired an employee who had B2B SaaS marketing experience, and he worked on getting users while I worked on building new features that would convince them to stick around. Though term sheets are generally non-binding, you want to understand what you’re agreeing to, beyond just valuation and amount raised.

Term Sheet 60

Term Sheet Venture Capital Liquidation Preference Valuation 60

ithacaVC

NOVEMBER 1, 2011

Normally employee options vest over 4 years, with 25% vesting after year 1 and then the balance pro rata (monthly or quarterly) over the remaining 3 years. This allows the acquiror to NOT be burdened with employee options of the selling company. I am probably not in the majority of VCs on this topic. Quick background: 1.

Vesting 60

Vesting Pre-Money Valuation Liquidation Preference Stock Options 60

K9 Ventures

NOVEMBER 21, 2011

You raised a Series A round, a Series B round, and this year are just about to raise a big Series C round at a great valuation. If they have, then there is no reason the founders shouldn’t get some liquidity of their own. 3) Setting a precedent for the price of the Common Stock : This is the biggest issue with founder liquidity.

Founder 87

Founder Common Stock Preferred Stock Stock 87

K9 Ventures

NOVEMBER 21, 2011

You raised a Series A round, a Series B round, and this year are just about to raise a big Series C round at a great valuation. If they have, then there is no reason the founders shouldn’t get some liquidity of their own. 3) Setting a precedent for the price of the Common Stock : This is the biggest issue with founder liquidity.

Founder 84

Founder Common Stock Preferred Stock Stock 84

abovethecrowd.com

APRIL 20, 2016

One key to this population growth has been the remarkable ease of the Unicorn fundraising process: Pick a new valuation well above your last one, put together a presentation deck, solicit offers, and watch the hundreds of million of dollars flow into your bank account. By January of 2016, that number had ballooned to 229.

IPO 40

IPO Term Sheet Silicon Valley Valuation 40

abovethecrowd.com

FEBRUARY 24, 2015

An unprecedented 80 private companies have raised financings at valuations over $1B in the last few years. The size of these companies’ private valuations may be similar to a traditional public company valuation, but that is where the similarities begin and end. This was the recent case with the Box.com IPO.

IPO 40

IPO Liquidation Preference Valuation Technical Review 40

www.paulgraham.com

APRIL 28, 2010

When youhear people talking about a successful angel investor, theyre notsaying "He got a 4x liquidation preference." 2 ] When you negotiate terms with a startup, there are two numbers youcare about: how much money youre putting in, and the valuation ofthe company. The valuation determines how much stock you get.

Angel Investor 63

Angel Investor Syndicate Syndication Dilution 63

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. They did get the partners on board on the condition that the term sheet is renegotiated at a lower valuation. Startup outcomes tend to be very binary.

Term Sheet 46

Term Sheet Silicon Valley Syndicate Syndication 46

Both Sides of the Table

FEBRUARY 14, 2016

I have been talking about my concerns about valuations for the past couple of years because, well, they’ve been rising very rapidly the past two years! ” “Mark has a vested interest in talking down valuations of startups.” Do Investors WANT Valuations to Drop? The Motive for Speaking Up. Mostly, no.

Valuation 150

Valuation Down Round Startup Later Stage 150