The Startup Lawyer

JANUARY 10, 2012

In most equity financing rounds, an investor will ask for (and get) a term called a liquidation preference. A liquidation preference is the amount that must be paid to a preferred stock holder before any sale proceeds may be paid to the holders of common stock (i.e., founders, option holders, etc.).

Liquidation Preference 73

Liquidation Preference Pre-Money Valuation Participating Preferred Preferred Stock 73

The Startup Lawyer

JULY 13, 2011

I’ve done quite a few recent seed deals using various ‘standard’ seed financing docs ( Series Seed , TechStars Series AA , etc.). 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.

Preferred Stock 68

Preferred Stock Liquidation Preference Participating Preferred Stock 68

Scott Edward Walker

NOVEMBER 26, 2017

Despite all the hype in the press (including with respect to the latest ICO craze), raising funds for your startup is still tough – particularly if you’re not located in San Francisco or Silicon Valley. The hard part, of course, is getting in front of “A” investors to pitch your startup. Tip #1: Get Warm Referrals to “A” Investors.

Term Sheet 63

Term Sheet San Francisco Founder Investment Bankers 63

Both Sides of the Table

APRIL 14, 2010

Once you cross the threshold where their percentage ownership would be worth more than the value of their preference they “convert&# their preferred stock into common stock and take their proceeds pari passu (along side and on the same terms as you) with the common stock holder. But pass they will. Brain damage. Reputation.

Venture Capital 289

Venture Capital Liquidation Preference Common Stock Dividend 289

ithacaVC

DECEMBER 14, 2011

Sometimes, after getting back the LP, the preferred holder then converts to common and gets its prorata share of proceeds left after all LP has been paid (this is called participating preferred). The “no mess” LP issue relates to investors in later rounds of financing (typically Series C and beyond).

Liquidation Preference 49

Liquidation Preference LP Preferred Stock Liquidity Event 49

www.payne.org

SEPTEMBER 22, 2011

Startup Equity For Employees. 2 Stock Classes: Common and Preferred. The re-heating of the venture funded tech market has pushed a heat up of the hiring market, and Im getting more calls from friends asking for help understanding startup stock (equity) offers. Stock Classes: Common and Preferred. From Payne.org Wiki.

Equity 56

Equity Employee Vesting Preferred Stock 56

Professor VC

JULY 25, 2013

Startup outcomes tend to be very binary. Yes, there are a number of cases in the middle where having a senior or participating preference does make a difference in liquidation proceeds, but I argue that it does very little to overall returns in a diversified portfolio. Unfortunately, not everyone follows the KISS principle.

Term Sheet 46

Term Sheet Silicon Valley Syndicate Syndication 46

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