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)? There are some questions a distressed sale brings to mind.

Delaware 62

Delaware Liquidation Preference Preferred Stock Early Stage 62

Startup Company Lawyer

MARCH 14, 2010

To differentiate it from typical “Series A&# preferred stock, which comes with certain expectations with regard to rights. There is no real rule to what a particular series of preferred stock is called. Dividend preference. Liquidation preference. 2 common; 1 preferred. under $500K).

Finance 70

Finance Software Review Term Sheet Liquidation Preference 70

Startup Professionals Musings

SEPTEMBER 26, 2015

For later investments, the price is equity, with a percentage of the owner stock to be assigned to the investor. Type of stock assigned to the investor. Investors typically demand preferred stock, to give themselves certain voting and liquidation privileges over later shareholders.

Term Sheet 120

Term Sheet Demand Preferred Stock Liquidation Preference 120

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 Pre-Money Valuation 289

Scott Edward Walker

APRIL 9, 2012

ii) why are convertible notes issued instead of shares of common or preferred stock? In the context of a seed financing, the debt typically automatically converts into shares of preferred stock upon the closing of a Series A round of financing. Friends and family are also often issued shares of common stock.

Preferred Stock 87

Preferred Stock Finance Common Stock Liquidation Preference 87

ithacaVC

APRIL 25, 2014

The model includes a simple waterfall analysis using both participating and non-participating preferred (see line 44 and then columns M and O). The larger the preferred stock liquidation preference the larger the impact of participating preferred. The option strike price in cell J1 is arbitrary.

Cap Table 79

Cap Table Preferred Stock Pre-Money Valuation Liquidation Preference 79

ithacaVC

JUNE 29, 2018

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. It can also result from straight forward dilution. Regardless, I am a big fan of carve out plans.

Management 40

Management Liquidation Preference Preferred Stock Dilution 40

Scott Edward Walker

APRIL 22, 2012

ii) why are convertible notes issued instead of shares of common or preferred stock? As discussed in part 1 , in the context of a seed financing, a convertible note is a loan that typically automatically converts into shares of preferred stock upon the closing of a Series A round of financing.

Pre-Money Valuation 72

Pre-Money Valuation Finance Liquidation Preference Founder 72

The Startup Lawyer

JULY 13, 2011

The deal documents called the preferred stock “Series Seed&# shares but after opening up the documents I quickly realized the deal terms were NOT the same as those in the well-known Series Seed document set. For example, a startup requested I review a set of financing documents produced by investor counsel.

Preferred Stock 68

Preferred Stock Liquidation Preference Participating Preferred Stock 68

Tim Keane

JANUARY 12, 2010

Term-sheets for preferred stock offerings are designed to protect the investor in case things don’t go as well as planned. Second a liquidation preference and a participation. On page two of the spreadsheet, you can see the result of dividends, liquidation preferences, and participation terms.

Term Sheet 68

Term Sheet Valuation Dividend Liquidation Preference 68

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)? There are a number of questions a distressed sale brings to mind.

Delaware 66

Delaware Liquidation Preference Liquidity Event Preferred Stock 66

Scott Edward Walker

JULY 7, 2011

A redemption right is another feature of preferred stock and permits the investors to require the company to repurchase their shares after a specified period of time; it is, in effect, a “put” right – that is, the investors may elect to put their shares back to the company. Redemption Rights What Are Redemption Rights?

Term Sheet 49

Term Sheet Redemption Venture Capital Preferred Stock 49

Berkonomics

MAY 22, 2014

Like most angel investors, I have preferences for the terms and conditions of investment and intend to negotiate with entrepreneurs on those terms, such as valuation, company structure, the makeup of the board of directors, liquidation preferences and others.

Early Stage 79

Early Stage Accredited Investor SEC Private Placement 79

K9 Ventures

NOVEMBER 21, 2011

2) The company can repurchase the founders’ Common Stock at the fair market value (FMV) price of the Common Stock, sell an equivalent amount of Preferred Stock, and then give the founder a bonus for the price differential between the Preferred price and the Common price.

Founder 87

Founder Common Stock Preferred Stock Stock 87

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

K9 Ventures

NOVEMBER 21, 2011

2) The company can repurchase the founders’ Common Stock at the fair market value (FMV) price of the Common Stock, sell an equivalent amount of Preferred Stock, and then give the founder a bonus for the price differential between the Preferred price and the Common price.

Founder 84

Founder Common Stock Preferred Stock Stock 84

ithacaVC

DECEMBER 13, 2013

QUESTION #3: What if Founder X and Founder Y issued themselves some sort of preferred stock instead of common stock? QUESTION #6: What if the company has already issued some preferred stock to early angels (often Series Seed stock). No problem, this is also normal.

Cap Table 67

Cap Table Pre-Money Valuation Option Pool Liquidation Preference 67

Startup Company Lawyer

JANUARY 31, 2011

Optional maturity conversion : into Series AA Preferred Stock based on a $5M valuation. Please note that these are generally the terms of the Series AA Preferred Stock financing documents that Y Combinator previously published.). Once again, I don’t know how to get a better deal than this.).

Preferred Stock 60

Preferred Stock Liquidation Preference IPO Common Stock 60

Scott Edward Walker

SEPTEMBER 14, 2011

Introduction This post originally appeared in the “ Ask the Attorney ” column I am writing for VentureBeat ; it is part of my ongoing series regarding venture capital term sheets.

Term Sheet 76

Term Sheet Due Diligence Liquidation Preference Redemption 76

Startup Company Lawyer

FEBRUARY 21, 2010

I was speaking at an event last month to a group of CEOs and was surprised by the number of CEOs that were worried about the value of their common stock in a M&A transaction. Due to aggregate liquidation preferences that may exceed the acquisition price in an M&A deal, common stock may be rendered worthless.

Retention 31

Retention Liquidation Preference Employee Common Stock 31

ithacaVC

APRIL 25, 2012

In my view, starting off a VC relationship by diving into perhaps the most critical economic term is kind of like, well, moving too fast on a first date.

Valuation 49

Valuation Pre-Money Valuation Liquidation Preference Preferred Stock 49

Scott Edward Walker

JULY 27, 2011

Introduction For the past few months, I’ve been discussing the rights of VC investors in connection with preferred stock financings, including the following: liquidation preferences anti-dilution provisions dividends Board control protective provisions drag-along provisions pay-to-play and pull-up provisions conversion rights redemption rights All (..)

Delaware 49

Delaware Liquidation Preference Redemption Los Angeles 49

abovethecrowd.com

MAY 20, 2013

There are common stock, common options, and as many as three to five different layers of preferred stock, each with a specific liquidation preference. Private companies typically have capitalization structures that are very complex.

Merger 53

Merger Institutional Investors Liquidation Preference Preferred Stock 53

Gust

MAY 24, 2012

By contrast, venture capital and angel investments normally take the form of Preferred Stock with rights and preferences set forth in the company’s Certificate of Incorporation and other governance documents.

IPO 159

IPO Equity Common Stock Stock 159

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. He obviously never launched a startup and got shafted by a co-founder. Leave a Reply Click here to cancel reply.

Cofounder 40

Cofounder Founder Preferred Stock Startup 40

www.mattbartus.com

DECEMBER 9, 2012

an option to purchase shares in the future at a pre-determined price) to the investor to purchase preferred stock at the Series A price. I've just seen many startups unhealthily focus on the valuation versus things such as the liquidation preference or board control. Matt Bartus. Matt Bartus.

Warrant 40

Warrant Valuation Pre-Money Valuation Term Sheet 40

Both Sides of the Table

SEPTEMBER 8, 2012

It has both a “full rachet” and “multiple liquidation preferences.” That means they get a 50% discount to the round [25,000 shares of preferred stock at $1 / share and 25,000 warrants at $0.01 / share equals around $0.50 / share - a 50% discount]. I’m not sure why people don’t see that.

Pre-Money Valuation 294

Pre-Money Valuation Finance Liquidation Preference Warrant 294

abovethecrowd.com

FEBRUARY 24, 2015

Most private company financings involve the use of preferred stock with liquidation preferences. These liquidation preferences give the investor a debt-like downside protection. In going public, all preferred shares are converted to common shares, and the pile of liquidation preferences goes away.

IPO 40

IPO Liquidation Preference Valuation Technical Review 40

Scott Edward Walker

JUNE 9, 2011

As many of you know, VC investors are typically issued shares of preferred stock, not common stock. Indeed, preferred stock, as the name suggests, is preferable to (and more valuable than) common stock because it grants certain key rights to the holders, one of which is a conversion right.

Term Sheet 60

Term Sheet Conversion Rights Venture Capital Liquidation Preference 60

Startup Company Lawyer

JANUARY 9, 2011

A logical alternative to convertible debt is a priced Series A preferred stock financing. Mark Suster does a good job analyzing whether convertible debt is preferable to equity , and concludes that convertible debt is better. This leads me to believe that there is a mini-bubble in the early stage financing universe.

Liquidation Preference 57

Liquidation Preference Finance Preferred Stock Common Stock 57

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. Two of the most popular equity securities found on a cap table are common and preferred stock. Liquidation Preferences.

Cap Table 40

Cap Table Liquidation Preference Dilution Liquidity Event 40

Professor VC

JUNE 6, 2016

I can just picture Mr. Rogers saying "Children, can you say participating preferred stock with an uncapped 3x liquidation preference and a full ratchet?" Well, maybe so after watching his middle finger salute.

Syndicate 28

Syndicate Syndication Cap Table Ratchet 28

www.paulgraham.com

APRIL 28, 2010

You give a startup money and they give you stock. Youllprobably get either preferred stock, which means stock with extrarights like getting your money back first in a sale, or convertibledebt, which means (on paper) youre lending the company money, andthe debt converts to stock at the next sufficiently big fundinground. [

Angel Investor 63

Angel Investor Syndicate Syndication Dilution 63