ithacaVC

DECEMBER 14, 2011

Continuing with the “No Mess” theme of commenting on things that give VCs pause, I thought it would be good to touch on liquidation preference. Specifically, “too much” liquidation preference (I will use “LP” for liquidation preference). Ok, enough of the background.

Liquidation Preference 49

Liquidation Preference LP Preferred Stock Liquidity Event 49

Startup Professionals Musings

JANUARY 27, 2012

The price is the percent of ownership given to the investor, calculated as “investment/post-money valuation.” The pre-money valuation is company value today, while the post-money valuation is the pre-money valuation plus the investment amount. Liquidation preference.

Term Sheet 223

Term Sheet Pre-Money Valuation Due Diligence Post-Money Valuation 223

Both Sides of the Table

FEBRUARY 15, 2016

The earlier the round, the less capital you need and the more reasonable your valuation the less time that is needed generally to raise capital. In other words, raising $2 million at a $6 million pre-money valuation has always been easier & quicker than raising $20 million at any valuation.

Burn Rate 150

Burn Rate Cap Table Valuation Software Review 150

Startup Professionals Musings

SEPTEMBER 14, 2010

The price is the percent of ownership given to the investor, calculated as “investment/post-money valuation.” The pre-money valuation is company value today, while the post-money valuation is the pre-money valuation plus the investment amount. Liquidation preference.

Term Sheet 227

Term Sheet Pre-Money Valuation Due Diligence Post-Money Valuation 227

Both Sides of the Table

APRIL 14, 2010

That means that the likely have a minimum of $15 million in liquidation preferences. It will usually be higher because the liquidation preference has a dividend so if the deal is long in the tooth assume that the liquidation preference might be $20-22 million. Take liquidation preferences head on.

Venture Capital 289

Venture Capital Liquidation Preference Common Stock Dividend 289

Tim Keane

JANUARY 12, 2010

An average of these ranges results in a pre-money valuation of about $4MM.   If similarly situated companies are seeing $3.5MM pre-money valuations, this might become the target valuation. Second a liquidation preference and a participation. stake in the company.

Term Sheet 68

Term Sheet Valuation Dividend Liquidation Preference 68

Gust

OCTOBER 17, 2011

The price is the percent of ownership given to the investor, calculated as “investment/post-money valuation.” The pre-money valuation is company value today, while the post-money valuation is the pre-money valuation plus the investment amount. Liquidation preference.

Term Sheet 158

Term Sheet Pre-Money Valuation Due Diligence Post-Money Valuation 158

Scott Edward Walker

APRIL 22, 2012

Using the example above, let’s assume the cap were $5 million and the pre-money valuation in the Series A round were $10 million. If the noteholders invested $500,000 and the price per share of the Series A Preferred Stock were $1.00, the noteholders would convert the loan at an effective price of $0.50

Pre-Money Valuation 72

Pre-Money Valuation Finance Liquidation Preference Founder 72

Growthink Blog

JANUARY 24, 2011

One very popular "preferred right" or "preference" that adds very significant value to outside investors and is common in venture capital investments is a liquidation preference. The liquidation preference means what is sounds - namely that preferred stock holders with this right get all of their money back (i.e.

Preferred Stock 93

Preferred Stock Stock Common Stock Liquidation Preference 93

Both Sides of the Table

SEPTEMBER 5, 2012

Because convertible debt deals often have both a ‘full ratchet’ and often have ‘multiple liquidation preferences’ “ Yup. Convertible Notes Also Can Have Multiple Liquidation Preferences. Convertible notes often have multiple liquidation preferences. That’s right.

Liquidation Preference 354

Liquidation Preference Ratchet Equity Stock 354

ithacaVC

APRIL 25, 2014

For example, cell E2 is the spot to put in the negotiated pre-money valuation. The model includes a simple waterfall analysis using both participating and non-participating preferred (see line 44 and then columns M and O). Cells that are shaded yellow are input cells.

Cap Table 79

Cap Table Preferred Stock Pre-Money Valuation Participating Preferred 79

ithacaVC

DECEMBER 13, 2013

There are many reasons for this, but fundamentally, it is impossible to calculate a share price for the investment round unless you have complete agreement on how many shares are outstanding pre-money. The share price is calculated by taking the pre-money valuation and dividing it by the number of shares outstanding pre-money.

Cap Table 67

Cap Table Pre-Money Valuation Option Pool Liquidation Preference 67

ithacaVC

JUNE 3, 2015

Post-Money Confusion with Convertible Notes “ Mark’s post warned of the often unintentional punishment that founders inflict on themselves when doing a convertible debt deal that contains a valuation cap. per share (calculated by taking $10mm premoney valuation/10mm shares outstanding fully diluted = $1.00). .$30

Liquidation Preference 40

Liquidation Preference Pre-Money Valuation Dilution Valuation 40

The Startup Lawyer

JANUARY 10, 2011

While progressive discussions with an investor about the investment are fine and most revolve around pre-diligence matters, sometimes these discussions shift towards the pre-money valuation and investment amount. And this has potential negative consequences for the startup.

Term Sheet 64

Term Sheet Pre-Money Valuation Liquidation Preference Option Pool 64

ithacaVC

APRIL 25, 2012

If you want to scare off VCs, start your pitch with “we are looking to raise $X at a pre-money valuation of $Y” Stating how much you want to raise is fine and recommended. However, stating a desired pre-money valuation early in the process is not a good idea. Here is why.

Valuation 49

Valuation Pre-Money Valuation Liquidation Preference Preferred Stock 49

K9 Ventures

MARCH 23, 2011

It is in essence equivalent to being a Liquidation Preference that is typically seen in a preferred equity financing. If you think the answer is 5%, because the financing happened at the same pre-money valuation as the cap in the note, then you’re wrong. There are multiple issues at hand here.

Pre-Money Valuation 132

Pre-Money Valuation Valuation Equity Liquidation Preference 132

www.mattbartus.com

DECEMBER 9, 2012

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. Take a look at the numbers: Pre-Money. One possibility is to negotiate a higher valuation and offer warrants (i.e., Post-Money. Option Pool.

Warrant 40

Warrant Valuation Pre-Money Valuation Term Sheet 40

Scott Edward Walker

APRIL 9, 2012

If, for example, the cap were $5 million and the pre-money valuation in the Series A round were $10 million, the amount of the note (plus accrued interest) would convert into shares of preferred stock at an effective price of $5 million or one-half of the price paid by the Series A investors.

Preferred Stock 87

Preferred Stock Finance Common Stock Liquidation Preference 87

Both Sides of the Table

SEPTEMBER 8, 2012

It has both a “full rachet” and “multiple liquidation preferences.” We plan to raise at a $5 million pre-money valuation. million pre-money. They share in liquidation preferences pari passu and they vote as a single class. ” I wrote about it here.

Pre-Money Valuation 294

Pre-Money Valuation Finance Warrant Liquidation Preference 294

thestartuplawyer.com

FEBRUARY 24, 2010

Contact The Startup Lawyer: Home Page About Contact FAQs Glossary Ryan Roberts Law: Home Page Social Networks: Facebook Twitter LinkedIn Flickr Delicious Digg Last.FM He obviously never launched a startup and got shafted by a co-founder.

Cofounder 40

Cofounder Founder Preferred Stock Startup 40

Feld Thoughts

JULY 14, 2015

The term sheet converts all the convertible debt into a post-money valuation of $100, essentially making the convertible debt worthless. The new money comes in at a pre-money valuation of $100, but includes a complete refresh of founder equity to 40% of the company. So they recapitalize the company.

Recapitalization 70

Recapitalization Pre-Money Valuation Post-Money Valuation Angel Investor 70

dondodge.typepad.com

JANUARY 15, 2011

So they will give you a pre-money valuation somewhere around the amount you raise. Sounds strange, but it usually works out that if you are raising $2M the VCs will value your company at $2M pre-money, and $4M post money so they end up with 50% of the stock.

Equity 40

Equity Employee Dilution Valuation 40

ithacaVC

NOVEMBER 1, 2011

When a VC prices an investment transaction, it normally treats all options as “outstanding” for purposes of determining the number of shares outstanding (in order to divide into the pre-money valuation to determine a share price). Last I checked, we VCs love it when a portfolio company is sold for a tidy profit.

Vesting 60

Vesting Pre-Money Valuation Liquidation Preference Stock Options 60

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 Dilution Syndicate Syndication 63